- “Incoming data from many countries is worse than our already pessimistic projections,” Georgieva said.
- After the quarantine, countries around the world pledged an additional $9 trillion to revive the economy.
- According to Georgieva, since April, a number of countries and investors have begun to return capital to developed markets.
The coronavirus is suffocating the global economy. However, it is expected that, in the future, the virus will loosen its grip and revive entrepreneurship. Still, the consequences are severe. Those were the warnings of Kristalina Georgieva, the head of the International Monetary Fund.
“Incoming data from many countries is worse than our already pessimistic projections,” she said. “Very likely we are going to come up with the update to our projections sometime in June and at that point, our expectation is that there would be a bit more bad news in terms of how we see 2020.”
In mid-April, the world economy fell by three percent. The International Monetary Fund, however, is optimistic. If the second wave of the virus starts and is not re-quarantined, there could be a 6 percent increase next year. The world’s three largest economies have fallen behind.
For the first time in a quarter of a century, China’s economic activity has declined. The European Union has suffered such losses for some time. However, the US economy has stopped growing for the first time in many years. Unemployment in America has risen to a level not seen in a century.
“What I see in Argentina is actually a government that wants to do the right thing for its own people, and for its role in the region, (and) in the world economy,” Georgieva said. She noted the previous crisis lasted for ten years. It was possible to get out of it by easing monetary policy, that is, by printing money. This time, the problem is not the lack of capital but the costs and restrictions associated with the virus.
After the quarantine, countries around the world pledged an additional $9 trillion to revive the economy. Countries that do not have such funds will borrow it. Repayment of the loan will be the responsibility of the next generation. Developed countries were quick to find lenders, while COVID-19 put the rest in a very precarious position.
In difficult years, all the money begins to flow from developed markets. This is the time now. Capital inflows lead to devaluation. This will increase not only new loans but also old ones.
As a result, relatively poor countries, such as Bulgaria, India, or Mexico, are more likely to be affected by the coronavirus crisis. The United Nations has warned of the need to raise $2.5 trillion for the anti-crisis package. When the death toll from the virus began to rise in March, cash outflows from developed markets reached $100 billion. This is about four times more than during the previous three financial crises.
According to Georgieva, since April, a number of countries and investors have begun to return capital to developed markets. However, all this is temporary. It all depends on the outcome of the fight against the virus. If the virus re-enters with a second wave, the losses can be significant. Economic forecasts will have to be reconsidered.
“Everyone has their own strategy. Probably, Europe is quarantined at an earlier stage of the epidemiological cycle than Asia, because Europe lags behind its Asian counterparts in the conduct of full-scale testing and control of the source of the virus and those who carry it,” said European Central Bank experts.
Everything has suffered a serious economic and psychological blow from quarantine. Therefore, it is understandable that people are in a hurry to get rid of it as much as possible, one expert said. However, you have to be very careful and avoid revealing everything right away. This could lead to a recurrence of the virus, the expert said.