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Source: IMF in French

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A long, uneven and uncertain ascent

Gita Gopinath

October 13, 2020

The COVID-19 pandemic has already claimed more than one million lives, and the tragedy continues. The whole world is learning to live with this virus, which presents an unparalleled challenge. With the easing of containment measures and the rapid implementation of activity support measures on an unprecedented scale by central banks and governments around the world, the global economy is on the rise after collapsing in the first half of this year. Employment is rebounding partially after falling sharply at the height of the crisis.

However, the crisis is far from behind us. Employment figures remain well below their pre-pandemic levels, and the labor market has become more polarized: low-income workers, young people and women are the hardest hit. affected. The poor are increasingly poor: nearly 90 million people are expected to find themselves in dire need this year. Going up the slope will undoubtedly take time: the ascent could be hilly and full of unforeseen circumstances. It is essential that fiscal and monetary support measures are not abandoned prematurely, to the extent possible.

In the latest edition of our World Economic Outlook, we still expect a severe recession in 2020. Global GDP is expected to contract 4.4%, an improvement of 0.8 percentage point from our June update. A slight improvement in the second quarter figures and signs of a more vigorous recovery in the third quarter explain this upward revision, which is still partially offset by downward revisions in some emerging and developing countries. Our forecast is that growth in 2021 is expected to rebound to 5.2%, 0.2% percentage point lower than we forecast in June.

Even in 2021, production is expected to remain below 2019 figures, in both advanced and emerging countries and developing countries, with the exception of China, whose production is expected to increase this year compared to 2019. Countries more dependent on highly people-to-people-oriented services and oil-exporting countries are experiencing a more timid recovery in their activity than countries with a dominant manufacturing base.

The pandemic is causing the income prospects of advanced countries to diverge on the one hand, and those of emerging and developing countries on the other; our forecast is for this divergence to widen. We have revised our forecasts upwards for advanced countries, which should see their GDP contract by 5.8% in 2020, before rebounding to 3.9% in 2021. On the other hand, we have revised our forecasts downwards for emerging countries and developing countries (excluding China), which should see their GDP contract by 5.7% in 2020, before regaining growth to 5% in 2021. As a result, the cumulative growth of income per living in emerging countries and in developing countries (excluding China) for the period 2020-21 should be lower than that of advanced countries.

It is likely that this crisis will have medium to long-term consequences: indeed, labor markets take time to recover, uncertainty and balance sheet problems hamper investments, and the loss of school learning depreciates the human capital. After its expected rebound in 2021, global growth is expected to gradually slow to around 3.5% over the medium term. Cumulative production losses compared to the predicted trajectory before the pandemic are expected to drop from 11 trillion dollars between 2020 and 2021 to 28 trillion between 2020 and 2025. This development marks a serious setback for the improvement of the average standard of living in all country groups.

The outlook remains extremely uncertain, and forecasts could be revised upwards or downwards. The resurgence of the virus leads to a return to localized containment measures. If this trend worsens and the prospects for treatments and vaccines wane, economic activity will pay a heavy price, which could be weighed down further by serious disruptions in the markets. Increasing restrictions on trade and investment, in an increasingly uncertain geopolitical context, could halt the recovery in activity. Conversely, the economic picture could become much clearer if tests, treatments and vaccines soon become available in a large number of countries; the rapid and widespread implementation of economic stimulus measures could also play a positive role.

The massive budget support measures at the global level (nearly 12 trillion dollars) and the considerable rate cuts, liquidity injections and asset purchases by central banks have made it possible to save lives and preserve resources. existence, and avoid financial disaster.

We must intervene more

Much remains to be done to sustainably turn around the business. First, there is a need to increase international collaboration to end the health crisis. The development of tests, treatments and vaccines is making spectacular progress, but large-scale production and distribution in all regions of the world will only be possible if countries cooperate closely in this area. According to our estimates, if medical solutions were to become available faster and on a larger scale than in our baseline scenario, global revenues could cumulatively increase by nearly $ 9 trillion by the end of 2025, which would increase income in all countries and limit the divergence in income prospects between different groups of countries.

Secondly, as much as possible, every effort should be made to limit the continuing economic damage caused by the current crisis. Governments should continue to provide income supplements, by providing targeted cash transfers, wage subsidies and unemployment benefits. To avoid large-scale bankruptcies and to ensure that workers can return to productive employment, it is important, where possible, to continue to support vulnerable but viable enterprises, through tax deferrals, tax moratoriums. debt service and capital injections in the form of equity investments.

As the recovery is confirmed, action will have to be reoriented so as to promote the retraining of workers, to help them leave sectors likely to contract in the long term (tourism, for example) and join the growth sectors (such as e-commerce). Workers will need to be helped to retrain, by providing income transfers and training them to acquire new skills. To promote this reconversion, it will also be necessary to take measures aimed at speeding up bankruptcy procedures and liquidation mechanisms for insolvent companies. In a context of low interest rates and high uncertainty, a public investment program in green infrastructure can help create large numbers of jobs and accelerate recovery, while being an important first step towards reducing carbon emissions.

Emerging and developing countries have fewer resources to deal with the crisis; indeed, many of these countries are heavily indebted and incur high borrowing costs. These countries will need to prioritize essential spending on health and transfers to the poor, and ensure that the measures implemented are as effective as possible. They will also need sustained international aid in the form of grants and concessional financing, and even debt relief for some of them. When debt is unsustainable, it must be restructured as quickly as possible, in order to free up funds that must be used to mitigate the effects of the crisis.

Finally, policies must be designed in a way that puts countries on a path to stronger, more equitable and more sustainable growth. While the easing of monetary policy at the global level is essential for the recovery, it must be supplemented with measures to prevent the build-up of financial risks in the medium term; furthermore, the independence of central banks must be maintained at all costs. The necessary budgetary outlays, combined with the collapse in production, pushed sovereign debt to a record high of 100% of global GDP. While low interest rates and the resumption of growth expected in 2021 will stabilize the debt levels of many countries, all would also benefit from having a medium-term fiscal framework that would allow them to inspire confidence in sustainability. of their debt. In the future, governments will likely need to make their taxes more progressive, while ensuring that businesses pay their fair share of taxes, and eliminating unnecessary spending.

Investments in health, digital infrastructure, green infrastructure and education can contribute to productive, inclusive and sustainable growth. To ensure that the most vulnerable are kept safe while promoting short-term activity, gaps in social protection systems need to be addressed.

We are in the worst crisis since the Great Depression: overcoming it will require innovative measures, both nationally and internationally. The challenges are great, but there is reason to be hopeful. The exceptional measures taken by the public authorities, in particular the establishment by the European Union of a recovery plan against the pandemic and the use of digital technologies to distribute social assistance, are striking proof that well-constructed policies guarantee both the protection of individuals and the economic well-being of the community. For its part, the IMF has granted financing to 81 member countries at record speed since the start of the pandemic; We have also provided debt relief and called for a large-scale suspension of debt service for low-income countries, as well as reform of the international debt system. As a follow-up to these initiatives, the measures to be taken to face the next stage of the crisis will have to focus on lasting improvements in the functioning of the world economy, so that tomorrow’s prosperity truly benefits everyone.


Gita Gopinath is an economic advisor and heads the research department of the International Monetary Fund (IMF). She is laid off from the Department of Economics at Harvard University, where she holds the John Zwaanstra Chair of International Studies and Economics.

Ms. Gopinath’s research focuses on international finance and macroeconomics, and is the subject of publications in prestigious economic science journals. She has published extensively on exchange rates, trade and investment, international financial crises, monetary policy, debt, and emerging market crises.

She co-edited the latest version of the Handbook of International Economics, having co-edited the American Economic Review and served as Editorial Secretary of the Review of Economic Studies. She has also co-directed the International Finance and Macroeconomics Program at the National Bureau of Economic Research (NBER), held the position of Visiting Professor at the Federal Reserve Bank of Boston, and served on the Economic Advisory Board of the Federal Reserve Bank of New York. . From 2016 to 2018, she was Economic Advisor to the Chief Minister of the Indian state of Kerala. She was also a member of the Advisory Group of Eminent Persons responsible for advising the Indian Ministry of Finance on G-20 issues.

Ms. Gopinath was elected a fellow of the American Academy of Arts and Sciences and the Society of Econometrics, and received the Distinguished Alumnus Award from the University of Washington. In 2019, Foreign Policy magazine ranked him among the world’s most influential thinkers; in 2014, the IMF recognized him as one of the top 25 economists under 45, and in 2011, the World Economic Forum selected him to be on its list of Young Global Leaders (YGL). The Indian government has awarded him the Pravasi Bharatiya Samman, the highest honor that can be awarded to Indians living abroad. Prior to teaching at Harvard University in 2005, she was a lecturer in economics at the Booth School of Business at the University of Chicago.

Ms. Gopinath was born in India. She is a citizen of the United States and an overseas Indian citizen. She received her PhD in Economics from Princeton University in 2001, after earning a Bachelor of Arts degree from Lady Shri Ram College and several Masters degrees from Washington University.

EDITOR’S NOTE: This article is a translation. Apologies should the grammar and / or sentence structure not be perfect.

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