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News June 24, 2020

IMF: US Economy to Contract 8% in 2020

The grim prediction is part of a similarly downgraded forecast for the global economy. Global debt will break records, the organization says.

By  Christopher Ruvo

The International Monetary Fund has issued a new forecast that predicts the United States’ economy will decline 8% in 2020 compared to 2019 as a result of the economic devastation caused by the coronavirus pandemic.

The forecast is a downward revision from April, when the Washington, D.C.-based organization predicted that gross domestic product would retreat by 5.9%.

Gita Gopinath

Gita Gopinath, chief economist, IMF

“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,” the IMF said Wednesday, June 24 in its World Economic Outlook update.

The IMF also revised its prediction for the worldwide economy in 2020. It now estimates that global GDP will decline 4.9%. In April, the organization had forecast a 3% worldwide economic drop.

Looking ahead to 2021, the IMF forecasts global growth of 5.4% – down from predicted growth of 5.8% that the organization had foreseen in April. That increase would be measured against the expected deep contraction of 2020, and thus not mark a return to pre-pandemic economic activity levels.

The IMF cautioned that there’s ample uncertainty in the forecasts due to the uncertainty and volatility tied to COVID-19 and its ongoing impacts on societies.

The organization, which works to foster international monetary cooperation and more, predicts that the European Zone economy will erode by 10.2% in 2020, while Brazil, Mexico and South Africa will fall by 9.1%, 10.5% and 8%, respectively. 

The IMF noted that the global decline in work hours during the second quarter of 2020 is likely to equate to a loss of more than 300 million full-time jobs, with low-skill workers and women in lower-income groups being disproportionately affected. “The steep decline in activity comes with a catastrophic hit to the global labor market,” the IMF said.

Global public debt is also poised to skyrocket, compelled by governments across the globe that have spent massively to keep economies from total collapse and their related need to borrow more. According to the IMF, global public debt will soar to 101.5% of GDP in 2020 and 103.2% of GDP 2021 – record highs. Average overall fiscal deficit will balloon to 13.9% of GDP this year; that’s 10 percentage points higher than in 2019.