IMF Economic and Fiscal Updates – October 2020

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CC) Global Panorama/IMFThe IMF has just released three reports, the latest World Economic Outlook (WEO), “A Long and Difficult Ascent,” the update to the Global Financial Stability Report (GFSR), “Bridge to Recovery,” and the Fiscal Monitor (FM), “Policies for the Recovery.”

According to the WEO, global growth is projected at -4.4% in 2020 – an upward revision of 0.8% compared to our June update – and 5.2% in 2021, a little lower than in June. The global economy is climbing out from the depths to which it had plummeted during the Great Lockdown in April. But with the COVID-19 pandemic continuing to spread, many countries have slowed reopening and some are reinstating partial lockdowns to protect susceptible populations. While recovery in China has been faster than expected, the global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks.

October 2020 Global Financial Stability Report (GFSR) :  Near-term global financial stability risks have been contained as unprecedented and timely policy response to the coronavirus (COVID-19) pandemic has helped avert a financial meltdown and maintain the flow of credit to the economy. But the outlook remains highly uncertain, and vulnerabilities are rising, representing potential headwinds to recovery. Vulnerabilities have increased in the nonfinancial corporate sector as firms have taken on more debt to cope with cash shortages and in the sovereign sector as fiscal deficits have widened to support the economy. As the crisis unfolds, corporate liquidity pressures may morph into insolvencies, especially if the recovery is delayed. Small and medium-sized enterprises (SMEs) are more vulnerable than large firms with access to capital markets. Although the global banking system is well capitalized, some banking systems may experience capital shortfalls in an adverse scenario, even with the currently deployed policy measures. Nonbank financial institutions have managed to withstand the market turmoil thanks to swift policy interventions, but fragilities remain, and the damage could be more extensive in a more prolonged period of market stress. Some emerging and frontier market economies already face financing challenges, which may lead to rising debt distress or financial instability. Looking ahead, it is imperative that policy support is maintained for the recovery to take hold. As economies reopen, accommodative monetary and financial conditions, credit availability, and targeted solvency support will be essential to sustaining the recovery.

October 2020 Fiscal Monitor (FM): Fiscal policy needs a strategy to adapt to the unprecedented challenge from COVID-19, tailored to the phase of the pandemic. Chapter 1 of the October 2020 Fiscal Monitor discusses fiscal policies during and after the pandemic that save lives and livelihoods and revive growth and job creation. Chapter 2 discusses how public investment can contribute to the recovery, create jobs, and strengthen resilience to future crises.

Access IMF World Economic Outlook here.

Access IMF Global Financial Stability Report here.

Access IMF Fiscal Monitor here.