CBR
search
Economy

The International Monetary Fund building in Washington, DC, USA (File photo)

IMF projects weakened consumption

The International Monetary Fund building in Washington, DC, USA (File photo)

The International Monetary Fund (IMF) indicates that consumption is projected to be more muted that previously expected, according to its latest assessment of global growth trends.

The IMF said consumption will be more muted than previously projected.

This has been accompanied by the observation that individuals and entities are saving more, instead of making plans to spend. The Fund projected a deeper down turn in 2020, and a sluggish turnaround in 2021.

Global growth is projected at –4.9 per cent in 2020, 1.9 percentage points below the April 2020.

Consumption growth especially has been downgraded for most economies, reflecting the larger-than anticipated disruption to domestic activity.
The IMF said the projections of weaker private consumption reflect a combination of a large adverse aggregate demand shock from social distancing and lockdowns, as well as a rise in precautionary savings.

Moreover, investment is expected to be subdued as firms defer capital expenditures amid high uncertainty.
Policy support is expected to offset the deterioration in private domestic demand, it said.

People wearing protective masks carry shopping bags while walking through downtown Sao Paulo, Brazil, on Wednesday, June 10, 2020. The IMF said the projections of weaker private consumption reflect a combination of a large adverse aggregate demand shock.

In the baseline, global activity is expected to trough in the second quarter of 2020, recovering thereafter.

In 2021 growth is projected to strengthen to 5.4 per cent, 0.4 percentage point lower than the April forecast.
The IMF said consumption is projected to strengthen gradually next year, and investment is also expected to firm up, but to remain subdued. Global GDP for the year 2021 is forecast to just exceed its 2019 level.

The IMF admitted in the June 25 report that there is pervasive uncertainty around this forecast.
The forecast depends on the depth of the contraction in the second quarter of 2020 (for which it noted that complete data are not yet available) as well as the magnitude and persistence of the adverse shock.

Growth will strengthen to 5.4 per cent next year according to the April forecast.

In turn, these elements depend on several uncertain factors, including the length of the pandemic and required lockdowns; voluntary social distancing, which will affect spending and displaced workers’ ability to secure employment, possibly in different sectors.

Other factors mentioned were scarring from firm closures and unemployed workers exiting the workforce, which may make it more difficult for activity to bounce back once the pandemic fades; and the impact of changes to strengthen workplace safety—such as staggered work shifts, enhanced hygiene and cleaning between shifts, new workplace practices relating to proximity of personnel on production lines—which incur business costs.

The IMF also highlighted global supply chain reconfigurations that affect productivity as companies try to enhance their resilience to supply disruptions.