IMF's Economic Recovery Forecast Unlikely Given Brexit, COVID-19 Uncertainty - Researcher

IMF's Economic Recovery Forecast Unlikely Given Brexit, COVID-19 Uncertainty - Researcher

LONDON (UrduPoint News / Sputnik - 25th June, 2020) The International Monetary Fund's (IMF) predictions of a relatively rapid recovery for the global economy in 2021 appear to be overly optimistic given the threat of a second wave of COVID-19, economic protectionism, and uncertainty over a post-Brexit trade deal between the EU and UK, John Kirton, director of the G7 Research Group, told Sputnik.

On Wednesday, the IMF revised its World Economic Outlook forecast. The global economy is now expected to contract by 4.9 percent in 2021, a drop of 1.9 percentage points from predictions made in April, which Kirton said was not surprising.

"We've not seen any real breakthrough to convince people that a vaccine will come any time soon, even one that everybody will actually get at some reasonable point in 2021. So the IMF estimates for 2021 should be taken with not a grain but a bucket-full of salt. As the IMF itself admits, they've said the numbers they've given have a lot of uncertainty [around them] as they are all dependent on the course of the pandemic and behind the discovery of a vaccine," Kirton remarked.

The research group director noted the rapid spread of COVID-19 within emerging economies, and also added that the continued uncertainty over the likelihood of the United Kingdom and European Union agreeing on a trade deal by the end of the year will create further economic volatility.

"COVID-19 is also ravaging through emerging economies ... that has a direct effect on them and also has an impact on the world's biggest exporters. So, there's the poor management of COVID-19 and at the same time, you've got the uncertainties around Brexit where until recently it had looked like both sides were just locked in and looking for the other to blink. So there's a negative effect there, certainly on the United Kingdom and to some extent the European Union itself. So in the trade category, you do have protectionism breaking out all over, it seems," Kirton remarked.

In Wednesday's update, the IMF also revised its growth figures for 2021. The institution projects that the global economy will grow by 5.4 percent next year, which is 0.4 percentage points lower than April's forecast.

The COVID-19 outbreak is likely to cost the world economy $12 trillion by the end of 2021, the IMF said. With this prediction, the economic impact of the global pandemic is likely to be the heaviest blow faced by the world economy since the Great Depression of 1929, although most economies are likely to emerge from recession within two years.

Of particular note are the IMF's predictions for European countries, which are expected to experience significant economic contraction over the course of this year. Both Spain and Italy's economies are predicted to shrink by 12.8 percent, with the UK, which has the highest number of COVID-19 cases in Europe, is set to see an economic contraction of 10.2 percent.

When asked as to why the United States, the global epicenter when it comes to the COVID-19 outbreak, appeared to be set for a comparably modest downturn of eight percent, Kirton claimed that certain European economies were more dependent on tourism, an industry that was self-evidently vulnerable to extensive disruption in the face of lockdown policies or a resurgence of the pandemic.

"The UK will take a bigger hit [than the US] because it's basically more of a service economy which means it's a people-to-people economy. The British economy is also more dependent on international tourism than the United States, so with the lockdown uncertainty in the UK, you're still seeing confusing messages about what's happening if you fly to the UK," Kirton remarked.

This will also have a significant impact on the Spanish economy, as tourism accounts for 15 percent of the country's GDP. Consequently, the Spanish government will likely be flexible with its migration policy to allow UK citizens easy access to the country even after Brexit.

"With the continent also you've got countries like Spain saying we'll treat Brits like Europeans as we want their tourism ... it's unclear how that will last with new outbreaks. So it's these kinds of wake up calls in terms of strategy and a mini-second wave possibly happening a lot more quickly than some people may have thought or hoped," the research group director stated.

Kirton also argued there were extensive political factors in play over the handling of the pandemic, particularly when it came to personalities like US President Donald Trump, who is currently dealing with the possibility of defeat or re-election. This was introducing a "political agenda" not necessarily conducive to dealing with the pandemic, the researcher said.

"What you've got is a number of heavy-hitting countries like the United States, Brazil, and Mexico in the western hemisphere [who] are basically opening up too much and too soon. In part as they are in denial and don't believe the science, but in part as they want to accomplish a political agenda, like getting Trump re-elected in the face of his declining approval in the polls," Kirton said.

Despite the threat of a second wave of the outbreak, the G7 Research Group head said that it was unlikely that any country would be willing to take proactive measures to limit economic activity in preparation of a second wave of the outbreak.

"So there's actually very little good news, no green shoots yet that you can count on to continue to progressively grow, so even the major economies that we thought were doing well, like Germany and France, are looking at terrible numbers. But you can't expect them to just move back into what may be a more prudent lockdown," Kirton stated.

Despite the easing of lockdown measures across the world, the World Health Organization (WHO) confirmed on Wednesday that more than 135,000 new cases of COVID-19 were registered worldwide over the preceding 24 hours.

On Sunday, the WHO reported a record 183,020 new cases of the disease over a 24-hour period, with the recent growth concentrated in the United States, Brazil, and India.