IMF nearly doubles China's GDP growth forecast
14 Oct 2020


The International Monetary Fund predicts that China's economy will expand by 1.9 percent this year, nearly double the rate forecast in June, while global growth is projected to contract by 4.4 percent in 2020, a "less severe" scenario than projected at the end of the second quarter.


China continues to be the only economy to show positive growth in 2020 and will reach 8.2 percent growth next year, according to the World Economic Outlook released on Tuesday.


The IMF said that the United States will see a 4.3 percent contraction in its gross domestic product during 2020 compared to the 8 percent contraction forecast in June.


But its rebound in 2021 will be at 3.1 percent, 1.4 percentage points below the earlier projection.


"We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast," the IMF said in its latest quarterly forecast.


"The revision is driven by second quarter GDP outturns in large advanced economies, which were not as negative as we had projected; China's return to growth, which was stronger than expected; and signs of a more rapid recovery in the third quarter," it said.


In its June World Economic Outlook update, the IMF projected China's economy to grow by 1 percent.


In the October forecast, the Fund said GDP outturns for the second quarter surprised on the upside in China, where, after lockdowns eased in early April, public investment helped boost activity to return to positive growth in the second quarter.


It said GDP outturns also surprised on the upside in the US and euro area, where both economies contracted at a historic pace in the second quarter, but less severely than projected, with government transfers supporting household incomes.


China's GDP expanded 3.2 percent year on year in the second quarter, reversing from a contraction of 6.8 percent in the first quarter, according to China's official statistics.


Growth of the world economy will rebound to 5.2 percent in 2021, 0.2 percentage points below the June projection, reflecting the more moderate downturn projected for 2020 and consistent with expectations of persistent social distancing, the Fund said.


"The COVID-19 pandemic continues to spread with over 1 million lives tragically lost so far. Living with the novel coronavirus has been a challenge like no other, but the world is adapting," said Gita Gopinath, IMF's economic counselor and director of research.


Eased lockdowns and the rapid deployment of policy support on an unprecedented scale by central banks and governments around the world has lifted the global economy from the depths of its collapse in the first half of this year, but the ascent is likely to be "long, uneven, and highly uncertain", according to Gopinath.


"It is essential that fiscal and monetary policy support are not prematurely withdrawn, as best possible," she wrote in a blog posting.


The virus is resurging with localized lockdowns being re-instituted. If this worsens and prospects for treatments and vaccines deteriorate, the toll on economic activity would be severe, and likely amplified by severe financial market turmoil, she wrote.


In addition, growing restrictions on trade and investment and rising geopolitical uncertainty could harm the recovery. But on the upside, faster and more widespread availability of tests, treatments, vaccines, and additional policy stimulus can significantly improve outcomes, Gopinath noted.


To ensure a sustained recovery, greater international collaboration is needed to end the health crisis, and policies must aggressively focus on limiting persistent economic damage from this crisis, she wrote.


The IMF report noted that global trade began recovering in June as lockdowns were eased, with China as an important contributor.


"Its exports recovered from deep declines earlier in the year, supported by an earlier restart of activity and a strong pickup in external demand for medical equipment and for equipment to support the shift to remote working," the Fund said.


The Brookings Institution, in an update to its Tracking Indexes for the Global Economic Recovery that was published on Sunday, also said China has led the global recovery, with both the industrial and services sectors revived, and many indicators of economic activity already above pre-COVID levels.


Source: China Daily