Yesterday the IMF turned slightly more positive on the health of the global economy, however still warned of a ‘long, uneven and uncertain’ road ahead. According to the Fund, the global economy is now forecast to contract by 4.4% in 2020, a revision upwards from the estimated 4.9% hit predicted back in June. The main reason in projecting a somewhat less severe recession in 2020 was better than expected growth in China and some advanced economies in the second quarter with ongoing signs that the upturn continued in the last quarter.
However, when it comes to national debt levels, IMF forecasts debt in advanced economies is set to reach 125% of GDP by the end of next year and to increase to approximately 65% of GDP in emerging markets during the same period. Not that it's overly worried about such levels, believing low interest rates and a strong economic rebound (in their opinion) in 2021 will help in repaying some of the debt. The IMF spokesperson stated ‘ To ensure that debt remains on a sustainable path over the medium-term, governments may need to increase the progressivity of their taxes and ensure that corporations pay their fair share of taxes while eliminating wasteful spending’.
The risks to the downside do remain alarmingly large though. Trade frictions, geopolitical tensions, changes to financing conditions and even natural disasters, not forgetting another severe global outbreak of the virus all continue to be huge downside risks to any projections.