IMF projects negative global growth for 2020, recovery in 2021

The International Monetary Fund (IMF) is projecting negative global growth for 2020 as the world battles covid19 – a recession as bad as the global financial crisis 12 years ago or worse. There will, however, be recovery in 2021.

In a statement issued following a conference call of G20 finance ministers and Central Bank governors, IMF managing director Kristalina Georgieva said the human costs of the coronavirus pandemic are already immeasurable and all countries need to work together to protect people and limit the economic damage. “This is a moment for solidarity,” she said. She emphasises three points.

“First, the outlook for global growth for 2020 is negative—a recession at least as bad as during the global financial crisis or worse. But we expect recovery in 2021. To get there, it is paramount to prioritise containment and strengthen health systems—everywhere. The economic impact is and will be severe, but the faster the virus stops, the quicker and stronger the recovery will be.”

She said the IMF strongly supported the extraordinary fiscal actions many countries have already taken to boost health systems and protect affected workers and firms as well as the moves of major central banks to ease monetary policy. These bold efforts, she said, are not only in the interest of each country, but of the global economy as a whole. Even more will be needed, especially on the fiscal front.

“Second, advanced economies are generally in a better position to respond to the crisis, but many emerging markets and low-income countries face significant challenges. They are badly affected by outward capital flows, and domestic activity will be severely impacted as countries respond to the epidemic.” Investors have already removed US$83 billion from emerging markets since the beginning of the crisis, she said, the largest capital outflow ever recorded. The fund was also particularly concerned about low-income countries in debt distress – an issue on which it is working closely with the World Bank.

“Third, what can we, the IMF, do to support our members? We are concentrating bilateral and multilateral surveillance on this crisis and policy actions to temper its impact. We will massively step up emergency finance—nearly 80 countries are requesting our help— and we are working closely with the other international financial institutions to provide a strong coordinated response.” Georgieva said the fund was replenishing the Catastrophe Containment and Relief Trust to help the poorest countries and welcomed the pledges already made and call on others to join.

The IMF also stands ready to deploy all of its US$1 trillion lending capacity. “We are looking at other available options. Several low- and middle-income countries have asked the IMF to make a special drawing rights (SDR) allocation, as we did during the Global Financial Crisis, and we are exploring this option with our membership.”

Major central banks have initiated bilateral swap lines with emerging market countries, she noted. A swap line is a temporary arrangement where central banks agree to maintain a reciprocal supply of the other’s currency available to trade at the going exchange rate, according to finance blog, The Balance. A swap line is a monetary policy tool used to keep liquidity in the currency available for central banks to lend to commercial banks in order to maintain reserve requirements. This liquidity is necessary to keep financial markets functioning smoothly during crises by reassuring banks and investors that it's safe to trade in that currency and also confirms that the central banks won't let the supply of that currency dry up.

“As a global liquidity crunch takes hold, we need members to provide additional swap lines. Again, we will be exploring with our executive board and membership a possible proposal that would help facilitate a broader network of swap lines, including through an IMF-swap type facility,” Georgieva said. “These are extraordinary circumstances. Many countries are already taking unprecedented measures. We at the IMF, working with all our member countries, will do the same. Let us stand together through this emergency to support all people across the world.”