The International Monetary Fund (IMF) revealed its latest economic growth projections recently. Unsurprisingly, the report shows the emerging and developing Asian countries as the region where the most economic growth will come from in 2021.
Why is this not surprising? The single and overwhelming explanation comes from the way the Asian countries handled the virus outbreak. Used to such outbreaks, they had systems in place and adapted very quickly to the new reality, something we could not say when it comes to the Western world.
Downside Economic Risks as Seen by the IMF
Before having a look at the economic risks the IMF identified, it is important to fully understand the numbers in the picture from above. While the IMF predicts 3.1% or 5.2% growth in the United States, respectively the Euro Area, in 2021, the growth comes after a significant decline in 2020. More precisely, even if the IMF predictions turn out to be correct, the United States and Euro Area economies will still perform below the pre-crisis levels.
The IMF sees many risk factors threatening the growth projections. Social unrest is one of them. As we have seen in June in the United States and then in the rest of the world, the pandemic was not enough to keep people from protesting against racial inequality and racism.
Geopolitical tensions and the price of oil’s evolution also pose a threat to weaker growth than projected. New outbreaks on the pandemic front, though, seem to be the biggest risk to any economic projection. While it is unlikely that the economies will enter lockdown mode again, new outbreaks could severely impact growth. In Europe we already see some measures in this direction – Belgium closed all its bars and restaurants for a month, Catalonia (Spain) did the same but for only two weeks, and Paris followed too. Such measures, while temporary, will hit hard the economic growth and show just how fast any projection is affected.
Besides the ones mentioned so far, the IMF also considers a risk that in some parts of the world, the policymakers may prematurely withdraw economic support. If that happens, it puts pressure on a fragile recovery, and the risk of slipping back into recession increases.
All in all, the IMF report is full of caution and presents the world as it is more than six months into the pandemic – divided, fragile, uncertain.