The International Monetary Fund (IMF) said on Friday that the global economy is sliding into recession due to the Coronavirus pandemic that has been ravaging the world for about three straight months.
IMF managing director Kristalina Georgieva, who made the announcement said it was now clear that the world has entered a recession – as bad as or worse than in 2009, following the global financial crisis.
There is hope however that the world economy may bounce back in 2021 IMF said, noting that this will be possible only if the world succeeds in containing the virus everywhere and prevent liquidity problems from becoming a solvency issue.
Georgieva said a key concern about a long-lasting impact of the sudden stop of the world economy is the risk of a wave of bankruptcies and layoffs that not only can undermine the recovery but also erode the fabric of global societies.
The IMF Boss said some 80 countries have already placed requests for IMF emergency financing, with an expected spike in the figure.
IMF also projected a wide range of problems building up in emerging markets – the spread of the virus, the shut-down of economies, capital outflows and – for commodity exporters – a price shock.
“Many of these emerging markets will experience a contraction as necessary containment measures take their toll, and are shocked by reduced global demand for their exports – tourism, commodities, and manufactured goods – that provide critical streams of foreign exchange. Our current estimate for the finance needs of emerging markets is $2.5 trillion – a lower- end estimate for which their own reserves and domestic resources would not be sufficient,” She added.
In a joint statement by the International Monetary and Financial committee chair, Lesetja Kganyago and Georgieva at yesterday’s conference, both leaders noted that the world is in an unprecedented situation where a global health pandemic has turned into an economic and financial crisis.
“With a sudden stop in economic activity, global output will contract in 2020,” Georgieva and Kganyago said.
“IMF member countries have already taken extraordinary actions to save lives and safeguard economic activity. But more is needed. Priority should be afforded to targeted fiscal support to vulnerable households and businesses to accelerate and strengthen the recovery in 2021”, they added.
“Strong and coordinated policy actions, including at the multilateral level, are key to effectively resolve this global crisis. To this end, IMFC members welcomed the IMF’s expeditious efforts to support an exceptionally high number of countries requiring IMF emergency financing at the same time, as well as its close cooperation with other international financial institutions, especially the World Bank Group. The IMF stands ready to use its US$1 trillion financial capacity to support its member countries,” they added.