A Dwindling Economy and Soaring Debt

Due to the uncertainty looming over the global economy, the International Monetary Fund (IMF) has quashed its economic forecasts once again. This was announced on Wednesday and a warning has been issued to governments that public finances will plunge from the fallout of the coronavirus crisis.

Contraction figures estimated by the IMF are at 4.9% regarding the gross domestic product in 2020, lesser than the previous 3% estimate in April. According to the IMF, the first half of 2020 negatively superseded expectations and saw a decline in the levels of activity. New information projects a slow comeback from this pandemic as expected earlier, as per the latest updates from World Economic Outlook. Growth rates are expected at 5.4% for 2021 from an earlier 5.8% forecast made in April.

Downward revision explanations from the IMF suggested that with measures like social distancing likely to remain intact for the duration of the second half of the year, productivity and supply chains are being impacted. Henceforth nations still fighting the pandemic will demonstrate economic activity further deteriorating due to prolonged lockdowns. Uncertainty factors identified here include the length of the pandemic, social distancing, shifts in supply chain globally, and new labor market dynamics that plague the forecasts and a source of grave concern as alerted by IMF.

The global labor market has seen a calamitous scenario unfold due to furloughs and terminations with an estimated loss of more than 300 million full-time jobs. This has predominantly been a critical blow for low-skilled workers without opportunities to work from home. Income losses for lower-income groups, particularly women in some countries have taken a huge blow from this pandemic, according to the IMF.

The country forecasts suggest that the U.S economy is expected to contract by 8% this year, previously estimated at 5.9% in April. The forecast for the global economic slump for the eurozone was estimated at 10.2% while it is being predicted that Brazil, Mexico, and South Africa will slowdown at 9.1%, 10.5%, and 8% respectively for the year 2020.

The reverberations of the pandemic have forced governments across the world to announce astronomical relief packages and new borrowing which has backlashed with public finances to deplete; raising public debt to GDP ratio more than 100% this year. According to the IMF, the forecast base case shows global public debt at 103.2% of GDP in 2021, and the average overall fiscal deficit skyrocketing to 13.9% of GDP this year.