Global economy picking up but wave of infections can cause disruptions: IMF
By IAR Desk
The International Monetary Fund (IMF) has said that global economic activity is picking up after an unprecedented decline this year due to the coronavirus pandemic, but a second major wave of infections could trigger more disruptions, Reuters reported, quoting IMF Managing Director Kristalina Georgieva.
Georgieva also said that the fiscal costs of actions aimed at containing the pandemic and mitigating its economic fallout were driving up already high debt levels, but it was premature to start withdrawing needed safety nets.
A blog was posted by Kristalina including quotes such as “We are not out of the woods yet,” ahead of Saturday’s virtual meeting of finance ministers and central bank governors from the Group of 20 major economies. The IMF last month further decreased its 2020 global output forecasts, predicting a 4.9 percent contraction and weaker-than-expected recovery in 2021.
The report also cited Georgieva as saying that $11 trillion in fiscal measures by G20 members and other countries, as well as massive central bank liquidity injections, have put a floor under the global economy. Even so dangers lurked including a major new wave of infections, stretched asset valuations, volatile commodity prices, rising protectionism and political instability. Some countries lost more jobs in March and April than had been created since the end of the 2008 global financial crisis, and many of those jobs will never return. Job losses, bankruptcies and industry restructuring could pose significant challenges for the financial sector, including credit losses to financial institutions and investors.
She further suggested that to ensure stability, continued coordination across central banks and support from international financial institutions was essential. Regulation should also support the flexible use of capital to keep credit lines open for businesses.
The report also cited a statement by Kristalina stating “Monetary policy should remain accommodative where output gaps are significant and inflation is below target, as is the case in many countries during this crisis”.
The IMF has warned that rising protectionism and renewed trade tensions endangered the recovery in a report to the G20 . The report specifically mentions that a weak recovery itself raised the chances of disinflation and a prolonged period of low interest rates, which could undermine debt sustainability and financial stability.
