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The IMF published its updated economic forecasts this week following its last published report in June 2020. It noted that there had for a time seemed to be something of a revival going on, albeit a limited one, but that the resurgence of the pandemic had added further damage as economies started to lock down in an effort to bring it under control. The only positive note was the recovery of the Chinese economy and the ongoing economic picture generally is 'prone to setbacks'. Beneath these headlines the forecasts note that the economic downturn was caused not only by lockdowns but also by voluntary social distancing. The latter, the report notes, is easier in wealthier countries where levels of personal savings tend to be higher, social benefits from the government greater and advanced comms allow home-working to be more of an option. The impact of voluntary social distancing, the IMF suggests, is an important point. If the economic downturn is caused by government action in the form of lockdown in theory it should be possible to reboot the economy by opening it up again. However, if it is also caused by voluntary social distancing then in theory it may be much trickier to reverse the trend as it involves changing personal behaviour which could be much more difficult.

The IMF analysis suggests that both factors are more or less equally responsible for the downturn. That said, it also looks at health as well as economic impacts and notes that lockdowns are much more effective in terms of the latter if both early and stringent. This though is not just a public-health related issue as success in fighting off the virus will help build confidence and encourage people in the medium term to move away from voluntary social distancing when it is no longer needed. There is however something of a paradox to watch out for; in the short-term the economic downturn appears to be greater for those countries implementing strict, early lockdowns which has an intuitive logic about it. However, the analysis argues that in the medium-term the ‘bounce back’ may be quicker and more pronounced in such jurisdictions.

Some important and in some ways worrying trends are also identified in the document. There is an unequal effect of the pandemic with the most economically vulnerable members of society suffering the worst impacts; again not necessarily surprising but nonetheless an important reminder that it might otherwise be easy to overlook this large global group. Women and younger workers also appear to be in disproportionately disadvantaged groups. Women may for example be forced to take time away from work to look after children whose schools are closed and are also more likely to work in contact-related jobs such as retail, tourism and hospitality. Younger people on the other hand are more likely to work on short-term contracts and are therefore more vulnerable to unemployment than those benefitting from more permanent contractual arrangements.

Looking at the numbers themselves there is something of a nuance in these. The IMF predicts that the global downturn in terms of GDP will be 4.4% which is better than the last forecast in June. There will be, the forecast says, a rebound of 5.2% in 2021 which in contrast is worse than the previous prediction. The Chinese recovery already mentioned is a help as, being the second largest economy in the world, it has a significant impact. However, there are offsetting factors. Of those in the G7, both the UK and Italy are predicted to see particularly significant downturns. India is also predicted to have a rough time. The continent of Africa is also faced with major economic problems with about $1.2 trillion over the next three years needed to cover the economic damage there. The cruel irony here is that whilst Africa has done better in coping with the health situation than many feared, the economic hits have still been massive.

Overall then the economic picture is patchy. The data is not in itself surprising. What is perhaps most significant is the underlying analysis. The factors leading to the economic downturn give particular cause for thought. So too does the reminder of which groups are likely to be impacted most seriously by it, which should – if taken to heart – help to formulate national and international policy development. The slight downgrading of economic prospects for 2021 is also an important reminder that a long and winding road is ahead before the world returns to some kind of economic stability which in turn of course depends on how firm a handle is kept on the course of the pandemic.

Wayne Bartlett is an author for accountingcpd. To see his courses, click here.

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