Latest IMF forecast shows Australia weathering the COVID storm

30 Jun 2020


  • Edmund Tang

According to the International Monetary Fund (IMF), Australia’s GDP will perform better in 2020 than was feared just two months ago.

The IMF’s World Economic Outlook (WEO) now forecasts that Australia’s real GDP will contract by 4.5 per cent this year – after predicting a 6.7 per cent contraction in April.

If the forecast is accurate, Australia’s economy should weather the pandemic comparatively well. The WEO estimates that Australia’s economic growth will rebound sharply with 4 per cent growth in 2021. This would leave the Australian economy broadly flat over the 2020–21 period.

An encouraging forecast – by global standards

Among the 30 developed and developing economies included in its latest WEO report, Australia emerges in near pole position. It is the only country to receive an upwards revision for 2020 of 2 percentage points (ppts) or more (see table below).

This upwards revision indicates that perceptions of Australia’s current performance are improving. For advanced, emerging and developing economies, the IMF revised down its forecasts by an average 2 ppts.

Australia's impressive performance is a reflection of the country’s successful containment of the COVID-19 spread. This has enabled the reopening of many sectors sooner than expected.

Aided by a wide range of government policies at federal and state levels, the gradual easing of business restrictions has further heightened local business activity and allowed employees to return to work. The IMF is now confident that Australia will restart its economy ahead of its peers and many developing markets.

A deep global recession

Compared to its April forecast, the IMF projects a deeper global recession in 2020 and a slower recovery in 2021. The IMF expects the global economy to shrink by 4.9 per cent this year — a sharper contraction than the 3 per cent it predicted in April this year.

The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated and the recovery is projected to be more gradual than previously forecast,’ the IMF said.

The IMF is cautiously optimistic that the global downturn will bottom out in the June quarter this year and then commence a gradual recovery. The IMF predicts that world economic growth will strengthen to 5.4 per cent in 2021. This is 0.4 ppts lower than its April forecast.

If the projections are accurate, they herald the worst downturn since the Great Depression of the 1930s. The period 2020–21 will also see a more severe global contraction than the financial crisis in 2008.

In January, before the COVD-19 pandemic hit global economies, the IMF anticipated 3.3 per cent global economic growth this year.

Even with economic rebounds, the IMF thinks global GDP in 2021 will be some 6.5 ppts lower than in the pre-COVID-19 projections of January 2020. This implies a cumulative loss to the global economy over two years (2020–21) of over US$12 trillion.

Fasten your seat belts

The IMF anticipates a bumpy ride as nations reopen their economies. Recoveries are likely to be uneven as new COVID-19 outbreaks emerge, as confidence periodically surges, and as consumers remain wary of a return to normal activities.

Advanced economies are now forecast to shrink 8 per cent this year, dragged down by the Euro Area (-10.2 per cent), the United States (-8 per cent) and the United Kingdom (-10.2 per cent).

Emerging markets and developing economies – including China, India, ASEAN, the Middle East and Sub-Saharan Africa – are projected to contract 3 per cent this year. Excluding China, the economic hit to this group of economies is forecast to be even harsher, at 5 per cent.

Still, the IMF warned that there is a higher-than-usual degree of uncertainty around its forecast, with both upside and downside risks to the outlook. On the upside, better news on vaccines and effective treatments for infections may lead to a quicker economic recovery.

On the downside, new waves of coronavirus could easily reverse recently improved mobility and increase spending. A sudden tightening of financial conditions could trigger debt distress, while geopolitical and trade tensions could damage already fragile global relationships. 

World Economic Outlook, June 2020 Update

Overview of the World Economic Outlook Projections
(Percent change, unless noted otherwise)
Note: Real effective exchange rates are assumed to remain constant at the levels prevailing during April 21--May 19, 2020. Economies are listed on the basis of economic size. The aggregated quarterly data are seasonally adjusted. WEO = World Economic Outlook.
1. Difference based on rounded figures for the current and April 2020 WEO forecasts. Countries whose forecasts have been updated relative to April 2020 WEO forecasts account for 90 percent of world GDP measured at purchasing-power-parity weights.
2. Excludes the Group of Seven (Canada, France, Germany, Italy, Japan, United Kingdom, United States) and euro area countries.
3. For India, data and forecasts are presented on a fiscal year basis and GDP from 2011 onward is based on GDP at market prices with fiscal year 2011/12 as a base year.
4. Indonesia, Malaysia, Philippines, Thailand, Vietnam.
Year-on-year percent change

Projections Difference from April
2020 WEO Projections1
2018 2019 2020 2021 2020 2021
World Output 3.6 2.9 –4.9 5.4 –1.9 –0.4
Advanced Economies 2.2 1.7 –8.0 4.8 –1.9 0.3
United States 2.9 2.3 –8.0 4.5 –2.1 –0.2
Euro Area: 1.9 1.3 –10.2 6.0 –2.7 1.3
Germany 1.5 0.6 –7.8 5.4 –0.8 0.2
France 1.8 1.5 –12.5 7.3 –5.3 2.8
Italy 0.8 0.3 –12.8 6.3 –3.7 1.5
Spain 2.4 2.0 –12.8 6.3 –4.8 2.0
Japan 0.3 0.7 –5.8 2.4 –0.6 –0.6
United Kingdom 1.3 1.4 –10.2 6.3 –3.7 2.3
Canada 2.0 1.7 –8.4 4.9 –2.2 0.7
Other Advanced Economies2 2.7 1.7 –4.8 4.2 –0.2 –0.3
Australia 2.8 1.8 –4.5 4.0 2.2 –2.1
Korea 2.9 2.0 –2.1 3.0 –0.9 –0.4
Spain 2.4 2.0 –12.8 6.3 –4.8 2.0
Netherlands 2.6 1.8 –7.7 5.0 –0.2 2.0
Emerging Market and Developing Economies 4.5 3.7 –3.0 5.9 –2.0 –0.7
Emerging and Developing Asia 6.3 5.5 –0.8 7.4 –1.8 –1.1
China 6.7 6.1 1.0 8.2 –0.2 –1.0
India3 6.1 4.2 –4.5 6.0 –6.4 –1.4
ASEAN4 5.3 4.9 –2.0 6.2 –1.4 –1.6
Emerging and Developing Europe 3.2 2.1 –5.8 4.3 –0.6 0.1
Latin America and the Caribbean 1.1 0.1 –9.4 3.7 –4.2 0.3
Middle East and Central Asia 1.8 1.0 –4.7 3.3 –1.9 –0.7
Sub-Saharan Africa 3.2 3.1 –3.2 3.4 –1.6 –0.7