IMF Highlights Weak Demand Delaying Economic Recovery

The IMF has cautioned that the contraction in the global economy could be more severe than expected as consumer consumption is likely to remain under pressure in the coming months even after economies begin to reopen. In addition, recent weak economic data releases from around the world further reinforce IMF’s estimate that the global economy could contract by as much as 3% in 2020 as a result of the ongoing coronavirus pandemic.

While speaking at a conference, IMF chief economist Gita Gopinath stated, “If anything, it looks like the outlook will worsen. No country is being spared, and the numbers that you see coming in are historical lows.”

Easing of lockdown restrictions can help in economic recovery, but in the face of weak demand, the extent of recovery could be limited. Gopinath highlighted China, where the lockdown has ended and economic activity has resumed, but external demand continues to remain weak as most of its trading partners continue to remain in some form of shutdown for now.

She also warned against escalation of US-China trade tensions which could derail economic recovery as it could hamper cross-border capital flows. According to Gopinath, “”If we want to have a recovery where we have firms reopening, production taking place (and) people being rehired … we cannot have a further breakdown in global supply chains.”