IMF predicts shaper growth contraction from Covid-19

The IMF’s chief economist, Gita Gopinath, offered a sobering take on the state of the global economy and the prospects for Covid-19 recovery in a blog posted this week (16-June). “For the first time since the Great Depression, both advanced and emerging market economies will be in recession in 2020. The forthcoming June World Economic Outlook Update is likely to show negative growth rates even worse than previously estimated,” Gopinath said.

Back in April this year, the IMF’s World Economic Outlook forecast a global GDP contraction of 3%. That forecast came early in the Covid-19 outbreak with many European economies in the first few weeks of lockdowns that restricted social and economic activities. As events have unfolded, the IMF has come to view the crisis as “unlike anything the world has seen before.”

The uniqueness of the Covid-19 crisis is becoming more apparent as its effects are revealed in the new economic reality. That both demand- and supply-sides have been deeply impacted is one key factor in the IMF new forecasts. Both advanced and emerging markets are affected while the economic challenge of Covid-19 is also distinct in that it is being more heavily felt in the services sector. More ‘usual’ downturns see the brunt of recessionary forces concentrated on production sectors as demand and investments fall. In recent months, manufacturing sectors across both advanced and emerging markets have held up more robustly than service sectors.

In logistics terms, the significance of the new IMF forecasts does contain, if you look hard enough, some potential signs of hope. One day after Gopinath’s blog highlighted some signs of manufacturing holding up, Søren Skou, CEO of A.P. Moller-Maersk commented that “despite an expected 15-18% drop in demand due to Covid-19 during the second quarter, I am pleased that we expect to deliver operating earnings slightly above our operating earnings in the first quarter. This also means we expect operating earnings to be higher than they were in the same quarter last year.” Previously Maersk had expected a 20-25% drop in demand during the quarter.

Unfortunately, the IMF’s new forecasts weigh much more heavily on the downside, both globally and for the logistics industry. Looking to the months ahead, Gopinath points out that the IMF sees “South Asia being at high risk. We now see in Africa, including South Africa, an increase of cases. And we all know that it is not over until it is over everywhere.” More widely, the fall in aggregate demand across manufacturing and services is, amongst other effects, lowering commodity prices. When commodity prices began a cyclical downturn in 2015/16, it was emerging markets that were most painfully affected. There now appears to be a high likelihood that the economic stressors will hit some of the world’s emerging markets just as the virus takes hold in the same locations.

Source: Transport Intelligence

Author: Nick Bailey


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