The IMF cut its forecasts for the global economy and warns of rising debt

On Wednesday, the International Monetary Fund slashed its economic forecast and warned that there will be a great deterioration in public finances as the government tries to work on the huge economic impact of the coronavirus pandemic.

The IMF now estimated a contraction of 4.9% in global gross domestic product. This is 3% lower than the fall predicted in April.

In the world economic outlook on Wednesday, the IMF reported that “the Covid-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast.”

The GDP forecast of the fund was also downgraded for 2021. The expected growth rate is 5.4% from the 5.8% forecast made in April. This positive reading is a sign that economic activities would be recovering from a lower base following the economic impact of the coronavirus.

The fund further revealed that the downward revision was a result of the social distance measure which is still in place and might continue up till the second end of the year. The fund explained that the social distancing measure has had a huge effect on the companies” productivity and supply chains. For the nations that are still grappling with the coronavirus pandemic, the fund said that longer lockdown will further intensify the negative effect on the economy.

The IMF further explained that the current forecast is not yet ascertained as the economy is still affected by the ongoing pandemic and the changes in the global chain supply.

Added to this, the fund stated that “The steep decline in activity comes with a catastrophic hit to the global labor market." There is the tendency that the global decline in work hours in the second quarter of the year is likely to be equivalent to a loss of more than 300 million full-time jobs.

“The hit to the labor market has been particularly acute for low-skilled workers who do not have the option of working from home. Income losses also appear to have been uneven across genders, with women among lower-income groups bearing a larger brunt of the impact in some countries,” the IMF said.

In terms of the country's forecast, the fund revealed that the United States is expected to contract by 8% of this year, as against the 5.9% contraction in April. South Africa, Brazil, and Mexico are also expected to contract by 8%, 9.1%, and 10.5% respectively.

“The steep contraction in economic activity and fiscal revenues, along with the sizable fiscal support, has further stretched public finances, with global public debt projected to reach more than 100% of GDP this year,” the fund said.

Currently, there are more than 9 million confirmed cases of Covid-19 around the world. The United States and Brazil top the list of infected cases.