IMF warns of a ‘long ascent’ to pre-crisis levels, but will soon upgrade its GDP forecasts – CNBC

IMF warns of a ‘long ascent’ to pre-crisis levels, but will soon upgrade its GDP forecasts – CNBC

The economic crisis of 2020 may not have been as bad as the International Monetary Fund originally thought, but the path ahead will be a “difficult climb,” Kristalina Georgieva, the Fund’s managing director, said Tuesday.

The IMF projected in June a contraction of 4.9% in global GDP (gross domestic product) this year. However, the global economy has ended up performing better than the Fund’s expectations in the second and third quarters. This is expected to lead to “a small upward revision” to its growth forecasts which are due to be presented next week.

“The picture today is less dire. We now estimate that developments in the second and third quarters were somewhat better than expected,” Georgieva, who took the helm of the IMF a year ago, said during a speech in Washington, D.C.

She explained that the better-than-expected performance came from “extraordinary policy measures.”

“Governments have provided around $12 trillion in fiscal support to households and firms. And unprecedented monetary policy actions have maintained the flow of credit, helping millions of firms to stay in business,” she said.

The other side of this vast stimulus is the soaring levels of government debt. According to the IMF, global public debt will reach a record high of 100% of GDP this year. 

“Risks remain high, including from rising bankruptcies and stretched valuations in financial markets. And many countries have become more vulnerable. Their debt levels have increased because of their fiscal response to the crisis and the heavy output and revenue losses,” she said.

The IMF does not expect the global economy to return to its pre-crisis levels “over the medium term.”

CNBC