Crisis Like No Other: IMF Downgrades US GDP to -8.0%

Mish

In it's global downgrade the IMF declares a Crisis Like No Other.

Uncertain but Diminishing Recovery

In April, the IMF projected global GDP to be -3.0% and the US at -5.9%. Today, the IMF announces an Uncertain Recovery and a Crisis Like No Other.

Global growth is projected at –4.9 percent in 2020, 1.9 percentage points below the April 2020 World Economic Outlook (WEO) forecast. The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4 percent. Overall, this would leave 2021 GDP some 6½ percentage points lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s.

Quarterly World GDP

Quarterly World GDP IMF

Get used to downgrades. The IMF is perennially optimistic. 

In this case especially China.

Nonetheless, this is a huge downgrade.  Global GDP for the year 2021 as a whole is  forecast to just exceed its 2019 level.

Uncertainty

The IMF says there is pervasive uncertainty around this forecast like April.

For the first time in history, all regions are projected to experience negative growth in 2020. 

It seems like the certainty we have is increasingly negative.

Upside Risks

  1. Vaccine 
  2. Other medical breakthroughs 

Downside Risks 

  1. Bigger outbreaks
  2. More quarantines
  3. Firm closures
  4. Hiring 
  5. Bankruptcies
  6. Tighter financial conditions
  7. Trade tension between the US, China, EU
  8. Opec
  9. Weak demand
  10. High debt levels

IMF's Key Assumption

Countries will not reinstate stringent lockdowns of the kind seen in the first half of the year, instead relying on alternative methods if needed to contain transmission (for instance, ramped-up testing, contact tracing, and isolation).

Bear in mind that the revised forecast to the downside included that key assumption. 

Message for Trump

All countries—including those that have seemingly passed peaks in infections—should ensure that their health care systems are adequately resourced. The international community must vastly step up its support of national initiatives, including through financial assistance to countries with limited health care capacity and channeling of funding for vaccine production as trials advance, so that adequate, affordable doses are quickly available to all countries. Where lockdowns are required, economic policy should continue to cushion household income losses with sizable, well-targeted measures as well as provide support to firms suffering the consequences of mandated restrictions on activity. Where economies are reopening, targeted support should be gradually unwound as the recovery gets underway, and policies should provide stimulus to lift demand and ease and incentivize the reallocation of resources away from sectors likely to emerge persistently smaller after the pandemic.

That message was to "all countries" but one has to wonder if it was pointed at the US.

Houston Will Exceed ICU Capacity by Tomorrow

Note that Houston Will Exceed ICU Capacity by Tomorrow.

Fake News of the Day

In the fake news of the day Trump says States are Testing Too Much.

No medical experts of any merit, including his own staff would agree. 

Yet, Trump just cut funds for more testing in five states. See the above link for details.

Mish

Comments (22)
No. 1-16
Sechel
Sechel

The key to economic growth is tackling covid-19, not ignoring it. U.S. has now set a record for daily infections. And its not just testing like Trump wants to say since the ratio of testing positive over total tests is increasing in many states as well as hospitalizations.

vanderlyn
vanderlyn

great take, mish. you do fine work. thanks.

tokidoki
tokidoki

Dow 800K then?

njbr
njbr

This worked well before, right?....The Trump administration is considering new tariffs on $3.1 billion exports from France, Germany, Spain and the U.K., according to a notice from the U.S. Trade Representative released Tuesday evening. The new duties on olives, beer, gin and trucks can be up to 100%.....

njbr
njbr

Signs of the times--CNBC headlines now

White House considers shakeup at CDC over botched Covid-19 response, report says

Dow plunges 700 points [Wednesday] as Florida sees record jump in coronavirus cases

Trump family asks court to block tell-all book by president’s niece Mary

McDonald’s will keep dozens of items off the menu for the foreseeable future

Cramer rails against wealthy money managers for scaring investors out of market with bubble talk

Stock market live Tuesday: Rally into the close, Dow gains 526, economy roaring back

Realist
Realist

Most developed countries were hit hard early on by CV19 and have since reduced their daily new cases by well over 90%. Their economies are now in the process of recovery.

The exception is the US, which has completely botched their pandemic response thanks to Trump’s inability to show leadership. New cases are accelerating and hitting new record highs in the US. This will further damage the US economy.

The problem for the world economy is that the developing world is now being hit hard by the virus, and that includes some heavily populated countries like India, Brazil, Pakistan, Bangladesh etc This is going to result in a lot of economic damage.

And since a vaccine is not likely till 2021, a second wave will likely hit the countries that have successfully battled their first waves.

Net result is a very weak global economy until a vaccine is widely available.

I continue to predict zero growth for the US for the entire decade (2020-2030). Of course if 2020 is -8%, I expect it to take the rest of the decade to get back to where we were at the beginning of 2020.

ToInfinityandBeyond
ToInfinityandBeyond

Hate to say it but we are only in the early innings of this outbreak. And anyone who believes that we will have an effective vaccine soon is in fantasy land. We need effective state government responses coordinated at the federal level. And the chances of that happening with the clown we have in the White House is zero. Need to throw him in the big house for corruption and war crimes.

Herkie
Herkie

So the only economy in the world that will remain positive for the year is the same country that the virus came from. Nothing at all suspicious about that.

Herkie
Herkie

U.S. hits highest single day of new coronavirus cases with more than 45,500, breaking April record

MATHGAME
MATHGAME

Some want to believe the spike in cases is just a result of increased testing. It seems far more likely it is a result of failed leadership and population stupidity. For some strange reason this virus just doesn't respond well to wishing and hoping...

Augustthegreat
Augustthegreat

tRump may bully the whole world, but the coronavirus laughs back at him

ToInfinityandBeyond
ToInfinityandBeyond

Time for another massive stimulus bill. Only question is where will the goodies be distributed. If I was a betting man I would bet Wall Street more than Main Street.

ToInfinityandBeyond
ToInfinityandBeyond

Our government will save the rich - to hell with the poor. They don’t know any better. I say let those corporations that were fiscally irresponsible die once and for all. Survival of the fittest. Main Street will also suffer horribly in the short term but we need a reset of the US economy. Keeping zombie corporations alive mostly benefits the wealthy both directly and indirectly. Laissez faire.

Sechel
Sechel

we pushed to have states open as soon as possible and then not even in accordance with the CDC guidelines. of course this was going to happen

Tony Bennett
Tony Bennett

"Tighter financial conditions"

...

Yes. We haven't seen the tsunami of defaults / delinquencies yet (thank you stimulus / forbearance / change under the seat cushion) ... but it WILL come. And when it does ... All She Wrote re economy ...

Ted R
Ted R

And how accurate has the IMF been in the past?? Not very. Usually the opposite comes true.


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