Coronavirus poses risks to global economy’s fragile recovery: IMF

The coronavirus epidemic has already disrupted economic growth in China, and a further spread to other countries could derail a “highly fragile” projected recovery in the global economy in 2020, the International Monetary Fund warned on Wednesday.

In a note for G20 finance ministers and central bankers, the global lender mapped out many risks facing the worldwide economy, including the disease and a renewed spike in United States-China trade tensions, as well as climate-related disasters.

IMF Managing Director Kristalina Georgieva said the outbreak was a stark reminder of how unforeseen events could threaten a fragile recovery and urged G20 policymakers to work to reduce other uncertainties linked to trade, climate change, and inequality.

“Uncertainty is becoming the new normal,” Georgieva wrote in a blog posted on the IMF website. “While some uncertainties – like disease – are out of our control, we should not create new uncertainties where we can avoid it.”

Finance ministers and central bankers from the top 20 advanced industrialised economies will gather in Riyadh, Saudi Arabia, this week, still uncertain about the impact of the coronavirus, known as COVID-19.

Despite the outbreak, the IMF said it was sticking to its January forecast for 3.3 percent growth in the global economy this year, up from 2.9 percent in 2019. This forecast represents a downward revision of 0.1 percentage points from the forecast in October.

The IMF said the recovery would be shallow and could be derailed by the re-escalation of trade tensions or a further spread of the disease, which has already disrupted production in China and could affect other countries through tourism, supply chain linkages and commodity prices.

China has said it could still meet its economic growth target for 2020 despite the epidemic. Georgieva said the IMF expected only a small reduction in the growth of China’s gross domestic product (GDP) unless a protracted outbreak worsens the slowdown.

Even in the best-case scenarios, the projected rate of global growth was modest, Georgieva said, urging G20 policymakers to act to reduce trade tensions, mitigate climate change and tackle persistent inequality.
Cyber attacks, an escalation of geopolitical tensions in the Middle East or a breakdown in trade talks between China and the US could impede the short-term global recovery, the IMF said. Climate-related disasters, protectionism, and social and political unrest triggered by persistent inequality posed further economic risks.

In her blog, Georgieva said a phase-one trade deal between the US and China eliminated some negative consequences of trade tensions, reducing the drag on global GDP by 0.2 percent in 2020, or about one-quarter of the total impact.

But the phase-one trade deal left many tariffs in place and contained managed trade arrangements that could distort trade and investment while costing the global economy many billions of dollars, she said.

She also cited new IMF estimates that a typical climate-related natural disaster reduced growth by an average of 0.4 percentage points in the affected country the year it occurred.

To respond, policymakers should focus on diversifying energy sources and investing in resilient infrastructure, Georgieva said.

She said it was also critical to address persistently high income and wealth inequalities that she said could foment distrust in government contribute to social unrest.

Ministers could act this week by focusing on raising living standards and creating better-paying jobs through investments in high-quality education, research, and digitalisation, she said.