The IMF calculates an enormous loss of prosperity as a result of the pandemic. Germany is doing better than other industrialized countries.

Gita Gopinath, Chief Economist of the International Monetary Fund

Dhe pandemic will threaten prosperity in many parts of the world for years to come. The International Monetary Fund calculates that after an economic recovery in the coming year, global growth will level off at an annual rate of 3.5 percent in the medium term.

According to calculations by the fund, the global economy will lose a total of 28 trillion dollars in added value between 2020 and 2025 as a result of the pandemic crisis. This is a serious setback for the prosperity prospects in rich and poor countries, writes the fund’s chief economist, Gita Gopinath, in an article on the publication of the World Economic Outlook.

For the coming year, the fund’s economists are forecasting global growth of 5.2 percent. However, the strong recovery should not hide the fact that economic output in most countries of the world is lower than in 2019.

Down 4 percent in America

The big exception is China. Unlike most other nations, the country is avoiding a decline in economic output this year with a forecast growth rate of 1.9 percent. Next year it is expected to grow by 8.2 percent.

Germany is doing better than most industrialized nations. The 6 percent decline in gross domestic product predicted for this year will be followed by growth of 4.2 percent in 2021. In Europe, Italy, France and Great Britain have been hit harder. According to the monetary fund, they can each expect economic output to shrink by around 10 percent this year. Things are even worse for Spain, where the economy could even collapse by almost 13 percent this year.

According to the IMF forecast, the United States will close this year with a minus of 4.3 percent and show a growth rate of 3.1 percent next year. This means that the United States has been significantly less affected by the crisis this year than the eurozone as a whole, with a slump of 8.3 percent this year.

Poor countries may recover more slowly than rich ones

The easing of the standstill requirements and the enormous interventions by governments and central banks enabled the economy to recover from the quasi-collapse in the first half of the year, the fund analyzes. The employment situation has improved in many countries after the low in spring. But it is well below the pre-pandemic level. In addition, polarization trends are emerging on the labor market. Low-wage earners, young people and women are harder hit by developments than the rest. “The poor get poorer,” warns Gopinath. This year alone, 90 million people slipped into extreme poverty.

The economist therefore appeals to governments and central banks to continue their financial support for households and companies. It is essential that the support provided by fiscal and monetary policy is not withdrawn prematurely. The IMF economists fear that poor countries will recover more slowly than rich countries, especially when looking at economic output per capita. The stronger population growth in poor countries makes higher growth rates necessary than in the old industrial countries with their stagnating populations if one wants to maintain the level of prosperity.

The fund advises its member governments to continue to secure their budgets with transfer payments, wage subsidies and unemployment benefits. To avoid large-scale bankruptcies, companies should be kept alive with tax rebates, debt moratoriums, and government equity injections. The fund sees the risk of high national debt. According to his calculations, they will reach the threshold of 100 percent of global economic output. However, low interest rates and growth would make the problem manageable in the short term. In the medium term, however, countries would have to make their tax systems more progressive and ensure that large companies contribute their fair share of tax revenues.

The Monetary Fund emphasizes the great uncertainty in its economic forecast. If the pandemic produces increasing numbers of infections again in many parts of the world, this could slow the economy even more. If, on the other hand, vaccines or other therapies are found and applied quickly, this could give the world economy a boost.