IMF sees world in worst recession since Great Depression
April 10, 2020 12:38 pm
The International Monetary Fund (IMF) sees the world economy suffering its worst recession since the Great Depression this year, with emerging markets and low-income nations in Africa, Latin America and Asia at particularly high risk as unemployment ration is fast increasing.
With half of the IMF’s 189-member countries seeking aid, the executive board has agreed to double access to its emergency financing to meet expected demand of about $100 billion, Managing Director Kristalina Georgieva said in a speech on Thursday.
The IMF’s baseline outlook is for a partial recovery in the global economy in 2021 if the pandemic fades in the second half of this year to allow a gradual lifting of containment measures, Georgieva said. She stressed that uncertainty about the coronavirus duration means things may wind up being even worse.
The pandemic that has spread from the Chinese city of Wuhan to almost every corner of the globe has led to business closures and millions of lost jobs. Georgieva highlighted the hit to the retail, hospitality, transport and tourism industries and the effect on the self-employed and small- and medium-sized businesses.
“Because it is such a gigantic, dramatic development, a virtual standstill of the world economy, it requires massive, well-targeted measures,” Georgieva said an hour later in a Bloomberg TV interview with Tom Keene.
The grim economic projections continue a reversal from the IMF’s outlook from less than two months ago. As recently as Feb 19, the fund was telling Group of 20 finance chiefs that “global growth appears to be bottoming out.” Three days later, Georgieva predicted the virus would likely cut just 0.1 percentage point from the fund’s 3.3 percent global growth forecast for this year, although she acknowledged “more dire scenarios” were being studied.
Georgieva reiterated the IMF’s willingness to use its $1 trillion lending power. Should the crisis continue for longer than expected or if there’s a second wave of the disease, the IMF may need to bolster its resources, she said. In that case, creating more reserve assets called special drawing rights, or SDRs, could help emerging markets avoid a cash crunch as they deal with the health crisis, economic stagnation and capital outflows, Georgieva said.
The IMF also is seeking $1.4 billion in donations from members to be able to provide debt relief to low-income countries so they can spend on health needs rather than debt repayment, Georgieva said in her speech. That’s up from a previous $1 billion goal.
The fund is looking at the use of precautionary credit lines to get cash to countries and establishing short-term loans, as well other funding options like the use of reserve assets called special drawing rights, or SDRs, Georgieva said. The IMF continues to call on rich governments to agree to a standstill of debt repayments by the world’s poorest nations, she said.
The IMF and World Bank are preparing to hold their spring meetings via video conference for the first time ever next week. Their normal in-person meetings, which the organisations convene at their headquarters near the White House, typically draw thousands of delegates, observers and journalists from 189-member countries. The program has been pared down this year to be mostly media briefings, skipping the typical seminars and public discussions.
The IMF calculates that governments around the world have taken fiscal actions amounting to about $8 trillion, Georgieva said in a preview of key fund reports due to be released during next week’s meetings, including the World Economic Outlook.
Georgieva stressed the need to continue with essential containment measures and support for health systems; shield affected people and firms with large, timely, targeted fiscal and financial-sector measures; reduce stress to the financial system and avoid contagion; and plan for an eventual recovery.
In the last three weeks, a staggering 16.8 million Americans have filed for unemployment benefits, with weekly new claims topping 6 million for the second straight time last week as the novel coronavirus outbreak relentlessly savages the economy.
Thursday’s weekly jobless claims report from the Labor Department, the most timely data on the economy’s health, strengthens economists’ expectations of job losses of up to 20 million in April and their conviction that the economy is in deep recession. It also underscored an urgent need for more fiscal stimulus to halt the free fall, economists said.
“In its first month alone, the coronavirus crisis is poised to exceed any comparison to the Great Recession,” said Daniel Zhao, senior economist at Glassdoor, a website recruitment firm. “The new normal for unemployment insurance claims will be the canary in the coal mine for how long effects of the crisis will linger for the millions of newly unemployed Americans.”
The record unemployment insurance claims numbers are the result of businesses such as restaurants, bars and other social venues being shuttered as states and local governments implement tough measures to control the spread of COVID-19, the respiratory illness caused by the coronavirus.
Initial claims for state unemployment benefits slipped 261,000 to a seasonally adjusted 6.606 million for the week ended April 4, the government said. Data for the prior week was revised to show 219,000 more applications received than previously reported, taking the tally for that period to 6.867 million. All told, a record 16.78 million people have filed claims for jobless benefits since the week ending March 21.
Economists polled by Reuters had forecast claims slipping to 5.250 million in the latest week, though estimates in the survey were as high as 9.295 million.
“Today’s report continues to reflect the purposeful sacrifice being made by America’s workers and their families to slow the spread of the coronavirus,” said Labor Secretary Eugene Scalia in a statement.
Last week’s moderation in claims is probably temporary as more than 95% of Americans are now under “stay-at-home” or “shelter-in-place” orders. Reports are mounting of state employment offices being overwhelmed by a flood of applications.
The breadth of businesses shuttered has widened to include transportation and factories. Retailers have also furloughed workers. Labor market turmoil led to consumer sentiment tumbling a record 18.1 points in early April to 71.0, the lowest reading since December 2011, a separate report showed on Thursday.
The Federal Reserve on Thursday rolled out a broad, $2.3 trillion effort to bolster local governments and small and mid-sized businesses in its latest move to keep the economy intact. Fed Chair Jerome Powell said the U.S. central bank would continue to use all the tools at its disposal until the economy started to fully rebound.
Meanwhile, the US reported more than 23,500 new cases with over 1,524 new deaths, while Italy reported 4,200 new cases with 610 deaths and Spain 4,226 new cases with 446 new deaths as coronavirus claimed over 1,586,300 cases with over 94,786 deaths across the world on Thursday. In last 24 hours more than 6,600 people died of the deadly virus. France reported 1,341 and the UK 881 deaths on Thursday.
European countries, including hardest-hit Italy and Spain, have started looking ahead to easing lockdowns but their coronavirus-related fatality rates have fluctuated after initially showing a decline.
Italy imposed a nationwide lockdown on March 9 to slow the spread of the virus and Spain followed on March 14. New York state required all residents to stay home except for essential businesses on March 20 and now more than 94 percent of Americans are under similar orders.
New York, the hardest-hit state in America, reported its highest number of coronavirus-related deaths in a single day with even veteran doctors and nurses expressing shock at the speed with which patients were declining and dying.
The number of coronavirus cases in New York state alone approached 150,000, even as authorities warned the state’s official death tally may understate the true number.
“Every number is a face, “said New York Governor Andrew Cuomo, who ordered flags flown at half-staff across New York in recognition of the toll. “This virus attacked the vulnerable and attacked the weak and it’s our job as a society to protect the vulnerable.”