The IMF has revised down its world economic forecast, increasing the fall in global GDP it expects this year to 4.9% (previously a 3.0% decline). Forecast growth in global GDP in 2021 remains more or less unchanged at 5.4%, implying the IMF now expects the COVID-19 pandemic to have a larger, more permanent effect on the world economy. The IMF’s assessment for Chinese growth this year has also been edged down 1.0%, with a rise of 8.2% expected in 2021. This latest IMF assessment comes on the back of bearish economic forecasts coming out of the World Bank and OECD in recent weeks.
The new IMF outlook puts them firmly in the “U-shaped” economic growth camp but has, ironically, come at a time of recent more positive economic data in the USA, Europe and China. Chinese industrial production in May was up 4.4% y-o-y and US output also managed to climb on the previous month. Recent employment data has also surprised on the upside.
Weighing against this, the pandemic is still burning strongly in Latin American and some parts of Africa, causing global cases of the virus to start rising again. There are growing fears that this will feed back into a second wave of infections that will disrupt the speed and strength of the economic recovery in more developed regions. Should a second wave of infections and widespread lockdowns occur, the OECD thinks it could wipe a further 4% off the global economy over the next couple of years.
The economic outlook remains very clouded but there seems to be a growing divide between growth forecasts by multinational agencies and bank analysts, with the institutions being far more bearish. Equity markets are also proving to be more robust, with the MSCI index within 5% of its end-2019 level. For the time being, Roskill’s economic assumptions have not been changed, but we are placing greater emphasis on our “prolonged global recession” scenario, which is closer to the bank analyst view and the IMF’s previous set of assumptions.