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The Global Economic Reset—Promoting a More Inclusive Recovery

The Global Economic Reset—Promoting a More Inclusive Recovery Policymakers must do everything in their power to promote a more inclusive recovery, one that benefits all segments of society. (Kristalina Georgieva)

IMF new research, prepared jointly with the World Bank for the G20, focuses on how to increase people’s access to opportunities, no matter who they are and where they are from. More equitable access to opportunities is associated with stronger and more sustainable growth and higher income gains for the poor. But unlocking the full potential of all individuals is not an easy task.

The reality is that low-income households face higher health risks from the virus. They bear the brunt of record-high unemployment and are less likely to benefit from distance learning. Children’s nutrition may also be harmed by the disruption to school-provided meals. According to UN estimates, more than half a billion children worldwide have lost their access to education as a result of coronavirus lockdowns. Many won’t return to the classrooms after the pandemic, with girls more likely than boys to drop out.

These inequalities are truly shocking, but not unexpected. We know from experience and recent IMF analysis that major epidemics often exacerbate pre-existing income inequality.

A policy response like no other

The good news is that governments around the world have deployed extraordinary policy measures to save lives and protect livelihoods. These include extra efforts to protect the poor, with many countries stepping up food aid and targeted cash transfers. Globally, fiscal actions so far amount to about $10 trillion.

But given the severity of the crisis, significant further efforts are essential. This includes taking the measures needed to avoid a scarring of the economy, including from job losses and higher inequality. It is clear that increasing access to opportunities is now more critical than ever if we are to avoid persistent increases in inequality. About the three priorities read further from the blog

More on the issue of  Pandemic, Recession: The Global Economy in Crisis

COVID-19 has triggered the deepest global recession in decades. While the ultimate outcome is still uncertain, the pandemic will result in contractions across the vast majority of emerging market and developing economies. It will also do lasting damage to labor productivity and potential output. The immediate policy priorities are to alleviate the human costs and atenuate the near-term economic losses. Once the crisis abates, it will be necessary to reaffirm credible commitment to sustainable policies and undertake the necessary reforms to buttress long-term prospects. Global coordination and cooperation will be critical.

COVID-19 has delivered an enormous global shock, leading to steep recessions in many countries. The baseline forecast envisions a 5.2 percent contraction in global GDP in 2020—the deepest global recession in decades. Per capita incomes in most emerging and developing economies will shrink this year. The pandemic highlights the urgent need for policy action to cushion its consequences, protect vulnerable populations, and improve countries’ capacity to cope with similar future events. It is also critical to address the challenges posed by informality and limited safety nets and undertake reforms that enable strong and sustainable growth.

Regional Outlooks

The rapid rise of COVID-19 cases, together with the wide range of measures to slow the spread of the virus, has slowed economic activity precipitously in many EMDEs. Growth forecasts for all regions have been severely downgraded. Many countries have avoided more adverse outcomes through sizable fiscal and monetary policy support. Despite these measures, per capita incomes in all EMDE regions are expected to contract in 2020, likely causing many millions to fall back into poverty.

ImageEast Asia and Pacific

Growth in the region is projected to fall to 0.5% in 2020, the lowest rate since 1967, reflecting disruptions caused by the pandemic. China is expected to slow to 1% this year and rebound to 6.9 percent in 2021 as activity gradually normalizes there and as lockdowns are lifted around the world. Economic activity in the rest of East Asia and Pacific is forecast to contract by 1.2 percent in 2020 before rebounding to 5.4 percent in 2021. Among major economies of the region, Malaysia (-3.1%), the Philippines (-1.9%), and Thailand (-5%) are forecast to experience the biggest contractions this year.

ImageEurope and Central Asia. 

The regional economy is forecast to contract by 4.7%, with recessions in nearly all countries. The Russian Federation’s economy is forecast to contract by 6.0% this year, reflecting a jump in COVID-19 cases and the collapse in oil prices. Turkey’s economy is anticipated to shrink by 3.8% this year, subject to a drop in investment and shutdowns. Economic activity is expected to contract in every sub-region in 2020 as outbreaks of the virus constrain private consumption and investment: Central Europe by 5%; Western Balkans by 3.2%; South Caucasus by 3.1%; Eastern Europe by 3.6%; and Central Asia by 1.7%.

ImageLatin America and the Caribbean

The shocks stemming from the pandemic will cause regional economic activity to plunge by 7.2% in 2020. Brazil’s economy is projected to shrink by 8% due to lockdowns, plunging investment, supply chain disruptions, and soft global commodity prices. Mexico’s economy, hit by tighter financing conditions, the plunge in oil prices, the halt in tourism, and mobility restrictions, is on track to contract by 7.5%. Economic activity in Argentina is forecast to decline by 7.3%, reflecting stringent mitigation measures, lower external demand, and the impacts of uncertainty related to ongoing debt negotiations. Central America’s economy is projected to shrink by 3.6% and the Caribbean is anticipated to contract by 1.8%, and by 3.1% excluding Guyana, where the offshore oil industry is developing rapidly.

ImageMiddle East and North Africa. Economic activity in the Middle East and North Africa is forecast to contract 4.2% as a result of the pandemic and oil market developments. Iran is expected to contract 5.3%, the third year of contraction in a row. In many oil exporters, growth will be significantly constrained by policy cuts in oil production. In Gulf Cooperation Council (GCC) countries (-4.1%), low oil prices and uncertainty related to outbreaks of the virus will further weigh on non-oil activity. Economic activity among oil importers is expected to contract by 0.8% in 2020, as tourism and exports decline

ImageSouth Asia 

GDP in the region is projected to contract by 2.7% in 2020 as pandemic mitigation measures hinder consumption and services activity and uncertainty about the course of the pandemic chills private investment. In India, growth is estimated to have slowed to 4.2% in FY 2019/20, which ended in March 2020. Output is projected to contract by 3.2% in FY 2020/21, when the impact of the pandemic will largely hit. Pakistan (-2.6% in FY 2019/20) and Afghanistan (-5.5%) are both projected to experience contractions, as mitigation measures are anticipated to weigh heavily on activity. Growth in Bangladesh (1.6% in FY 2019/20) and Nepal (1.8% in FY 2019/20) is expected to decelerate markedly due to pandemic-related disruptions including mitigation measures and sharp falls in exports and remittance inflows.

ImageSub-Saharan Africa

 Economic activity in the region is on course to contract by 2.8% in 2020, the deepest on record. The economy of Nigeria is expected to shrink by 3.2% this year, given the collapse in prices for oil. South Africa’s output is forecast to contract 7.1% this year, the deepest contraction in a century, as stringent but necessary containment measures curtail economic activity. Economic activity among commodity importing economies is anticipated to shrink this year despite lower oil prices, as international travel restrictions weigh on tourist visits. Industrial commodity exporters’ GDP is similarly anticipated to contract in 2020 as domestic disruptions are compounded by low prices for oil and metals. Agricultural commodity exporters are also expected to experience a collapse in economic activity this year as foreign direct investment and tighter financial conditions delay investment.

COVID-19 is expected to lead to the deepest global recession in decades, with baseline forecasts envisioning a 5.2 percent contraction in global growth this year.

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