IMF Managing Director: Outlook is worse than our already Pessimistic Projection



“With the crisis still spreading, the outlook is worse than our already pessimistic projection. Without medical solutions on a global scale, for many economies a more adverse development is likely,” said IMF Managing Director Kristalina Georgieva in a new interview with the FT on how the IMF is supporting emerging and developing countries during the pandemic.

Indeed, new IMF staff research finds that major epidemics in this century have raised income inequality and hurt employment prospects of those with only a basic education while scarcely affecting employment of people with advanced degrees.

What can be done?

Access to sick leave, unemployment benefits, and health benefits are useful for all in dealing with the effects of the pandemic, but particularly so for poorer segments of society who lack a savings cushion and are thus living hand-to-mouth. Such a “New Deal”, write authors Davide Furceri, Prakash Loungani, and Jonathan D. Ostry, is important in sectors of the economy, and in regions, where informal work and self-employment are pervasive and where social protection systems are scant.

Aligned with these insights, Jan Kees Martijn of the IMF’s European Department recently discussed how emerging economies of southeastern Europe that are not part of the European Union, where incomes are lower, and social safety nets less developed, are particularly vulnerable to the economic and social impact of COVID-19.

For example in Moldova, the impact of the pandemic is compounded by the economy’s particularly high reliance on remittances, which amounted to nearly 16 percent of GDP last year. Moreover, a third of Moldovans working abroad are temporary migrants, who are often the most vulnerable, also jobwise, in their destination countries. The return of some of those overseas workers further complicated containment efforts.

COVID-19 and Conflict

The pandemic will trigger a sharp drop in household incomes in Middle East and North African (MENA) countries that are fragile and in conflict situations, such as Afghanistan, Djibouti, Iraq, Lebanon, Sudan, and Somalia. As export earnings suffer and social distancing reduces domestic activity, incomes will decline—especially for informal and low-skilled workers, including within large internally displaced populations and refugees.

Remittances—which represent 14 percent of GDP in fragile countries across MENA and serve as a lifeline for many households—are also expected to tumble by 20 percent as global incomes fall.

Standstill in Asia

During a keynote speech last week at the Boao Forum, IMF Deputy Managing Director Tao Zhang focused on the Asian economic outlook: “The impact of the coronavirus on the region will be severe, across the board, and unprecedented. Indeed, we are forecasting that Asia’s economic growth will come to a standstill in 2020. This is worse than the Global Financial Crisis, when growth slowed to 4.7 percent. It is even worse than the Asian Financial Crisis, when growth slowed to 1.3 percent. In fact, Asia has not experienced zero growth in the last 60 years.”

Losses of $200 billion

Sub-Saharan Africa is facing an unprecedented health and economic crisis that threatens to reverse much of the development progress it’s made in recent years. The latest Regional Economic Outlook shows the economy will contract by 1.6 percent this year; the worst reading on record. Papa N’Diaye, Head of Research in the IMF’s African Department, says that by the end of 2020, the region will face income losses of about $200 billion relative to what they were expecting 6 months ago.

If you have 5 minutes, watch Abebe Aemro Selassie, director of the IMF’s Africa department, be interviewed by the BBC on the heavy toll that the pandemic will exact on African nations more broadly.

Tracking Trade

With the current fast-changing developments, policy makers need to know what is happening to the economy in real time, but they often must settle for data telling them what happened many weeks ago. International trade, which links countries through a complex web of supply chains, is an area where timely information is especially valuable from a global perspective.

Most trade takes place by sea, and—for navigational safety purposes—virtually all cargo ships report their position, speed, and other information many times a day. A new IMF methodology using these data can help better inform us how international trade is affected by the COVID-19 pandemic.

Building on machine-learning techniques, we can provide better answers to simple questions such as: How big is the drop in trade activity? Should it be attributed mostly to exports or to imports?

Emerging from the Great Lockdown

As containment measures proved effective in curbing the epidemic, a few Asian countries are already well down the path to reopening. In China, the number of reported new infections has stabilized at very low levels. Since mid-February, the government has been reopening the economy in a gradual, sequenced manner. It has prioritized essential sectors, specific industries, regions, and population groups based on continuous risk assessments. Meanwhile it has also been leveraging digitalization, big data and technology to support contact tracing.

Several European countries have announced plans to gradually reopen their economies and some have already begun the process. The timing, sequencing, and pace of the planned exits differ across countries, reflecting differences in the progress of the epidemic but also national preferences. For example, Denmark and Norway have started by reopening lower schools and services, while Spain has lifted restrictions in manufacturing and construction, as well as for some small businesses, including retail, with safety measures. Germany has lifted restrictions on retail shops and is gradually re-opening schools, with the relaxation subject to a break mechanism allowing for re-tightening if needed.


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