IMF lowers global economic growth forecast, warns of ‘more dire scenarios’

China’s coronavirus epidemic will likely cut 0.1% from global economic growth, and drag down growth for China’s economy to 5.6% this year, the International Monetary Fund said on Saturday.

“But we are also looking at more dire scenarios where the spread of the virus continues for longer and more globally, and the growth consequences are more protracted,” IMF Managing Director Kristalina Georgieva said at the G20 Finance Ministers and Central Bank Governors Meeting in Riyadh, Saudi Arabia.

Finance ministers and central bankers of the world’s 20 biggest economies (G20) are discussing top global economic challenges on Saturday and Sunday in Riyadh, focusing on the growth outlook and new rules to tax global digital companies.

In January the IMF had forecast global growth to strengthen from 2.9 percent last year to 3.3 percent this year. Since then, COVID-19 which the World Health Organization deemed a global health emergency, has disrupted activity in China.

The Chinese authorities are working to mitigate the negative impact on the economy, with crisis measures, liquidity provision, fiscal measures, and financial support, Georgieva noted.

“In our current baseline scenario, announced policies are implemented and China’s economy would return to normal in the second quarter. As a result, the impact on the world economy would be relatively minor and short-lived,” she said.

“In this scenario, 2020 growth for China would be 5.6 percent. This is 0.4 percentage points lower than the January WEO Update. Global growth would be about 0.1 percentage points lower.”

The fallout of the coronavirus epidemic is growing, given Chinese factories are still operating around half their capacity and many workers remain housebound. The partial shutdown of the world’s second biggest economy is having an effect elsewhere by weakening trade, fraying manufacturing supply chains, reducing tourism and fanning investor uncertainty.

“The world economy is facing a clear slowdown and this slowdown might be reinforced by the so-called coronavirus,” French Finance Minister Bruno Le Maire said in Riyadh. “The question remains open whether it will be a V-shape with a quick recovery of the world economy, or whether it would lead to an L-shape with a persistent slowdown in world growth.” He said the V-shaped scenario was more likely.

The G20 expects a modest pick-up in global growth this year and next, but noted downside risks to this outlook stemming from “… geopolitical and remaining trade tensions and policy uncertainty and macroeconomic risk related to environmental sustainability”.

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