The global economy is getting worse and faces a deeper recession than previously forecast as Covid-19 continues to rage, says the International Monetary Fund (IMF).
The organisation's new report "A Crisis Like No Other, An Uncertain Recovery" serves a sobering reminder that, even with the domestic economy performing better than expected, New Zealand faces a long, difficult period of recovery.
The IMF has downgraded its outlook for global GDP growth in 2020 from -3 per cent to -4.9.
The organisation's forecast for New Zealand's GDP fall this year held steady from its April report at -7.2 per cent.
While New Zealand is reaping economic benefits from eliminating Covid-19 and getting out of lockdown early, the gains are likely to be offset by the fall in global confidence.
Growth in the advanced economy group is projected at –8.0 per cent in 2020, 1.9 percentage points lower than the April forecasts.
"There appears to have been a deeper hit to activity in the first half of the year than anticipated, with signs of voluntary distancing even before lockdowns were imposed," the report says. "This also suggests a more gradual recovery in the second half as fear
of contagion is likely to continue."
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The grim outlook for key economies like the US, UK, euro zone and Japan, will likely depress global demand for commodities.
The ongoing pandemic is also denting hopes of a return to normal levels of international travel.
The IMF now sees US GDP slumping to -8 per cent this year, from a previous forecast of -5.9 per cent in April.
Both the UK and euro zone are forecast to see GDP falls of -10.2 per cent in 2020, compared to April forecasts of -7.5 per cent.
Japan also gets a GDP downgrade from -5.2 to -5.8 per cent.
In what could be one bright spot for New Zealand exporters, China's forecast holds steady and Australia's is slightly improved.
The IMF expects Australia's economy to shrink by just 4.5 per cent in 2020, from a 4.9 per cent forecast in April.
China's forecast dips from 1.2 per cent growth to just 1 per cent.
The IMF notes that a higher level of uncertainty than normal remains around these forecasts.
It warns of a "synchronised, deep downturn".
"First-quarter GDP was generally worse than expected (the few exceptions include, for example, Chile, China, India, Malaysia, and Thailand, among emerging markets, and Australia, Germany, and Japan, among advanced economies)," it says.
"High-frequency indicators point to a more severe contraction in the second quarter, except in China, where most of the country had reopened by early April."
One of the big problems for New Zealand will be the contraction in global trade.
"Trade contracted by close to –3.5 per cent (year over year) in the first quarter, reflecting weak demand, the collapse in cross-border tourism, and supply dislocations related to shutdowns (exacerbated in some cases by trade restrictions)," the report says.
Another bright spot in the report is its view that things could have been much worse without the strong fiscal and monetary policy response we've seen from governments and central banks.
"Swift and, in some cases, novel actions by major central banks (such as a few emerging-market central banks launching quantitative easing for the first time and some advanced economy central banks significantly increasing the scale of asset purchases) have enhanced liquidity provision and limited the rise in borrowing costs," the report says.
Longer term the IMF still forecasts a rebound from recessionary lows in 2021.
In 2021 global growth is projected to strengthen to 5.4 per cent, although that is still 0.4 percentage points lower than the April forecast.