IMF: 'Crisis Like No Other' Then Back To Status Quo Ante

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Posted: Jul 31, 2020 10:15 AM
IMF: 'Crisis Like No Other' Then Back To Status Quo Ante

Source: AP Photo/Richard Drew

The IMF just updated its economic projections for this year and the year after. The bad news is that this year, economic output is expected to plunge almost 5%. The good news is that output next year is expected to spike at a faster rate than this year's plunge, at almost 5.5%.

(Source: Statista, June 2020)

According to the report by Statista:

“The updated estimates would result in a 2021 GDP that is roughly in line with 2019's economic output and 6.5 percent below pre-COVID-19 projections made in January 2020. As for the previous forecast, the IMF notes that the current estimates are subject to an unusually high degree of uncertainty, as it's still unclear how the pandemic will play out.”

So, if the IMF is right -- a big 'if' -- then we basically have the prospect of a lost year, with 2021 ending at a level of output consistent with the end of 2019. But maybe IMF is too pessimistic-- it acknowledges that its outlook is more pessimistic than the markets have been:

"[…] [R]ecent rebound in financial market sentiment appears disconnected from shifts in underlying economic prospects.”

No human agency, neither multilateral institutions like the IMF nor the collective crowd wisdom of the markets, knows the future. But if the reality is in the vicinity of either of these outlooks, or between them, then we do not have a long economic winter ahead, but rather a quick freeze and a fairly quick thaw.