“We’re seeing a fairly quick recovery, which is why we have the upgrades,” Gita Gopinath, IMF’s chief economist, said on Oct. 13 during a press conference.
“In the second quarter, the recovery came about sooner than we expected. And then continuing into quarter three, the indicators have been stronger,” she said.
Overall U.S. economic growth for the full year will still be in negative territory. But the economy is now projected to contract by 4.3 percent in 2020, less sharply than an 8 percent drop predicted by the IMF in June.
Gopinath said the U.S. personal disposal income held up in the first half of the year, thanks to unprecedented fiscal stimulus and the central bank support.
The U.S. gross domestic product (GDP) contracted at an annual rate of 31.4 percent in the second quarter due to the pandemic. Since then, the economy has shown a V-shaped recovery, with some economists now predicting nearly 35 percent growth in the third quarter.
Some of the predictions made in June pertaining to mobility and consumer activity data haven’t materialized in the third quarter, according to Gian Maria Milesi-Ferretti, deputy director at IMF’s research department.
“At the time, we were thinking that the increase in the number of infections could imply some decline in mobility and activity, but that has really not materialized during the third quarter. And that has been one of the factors explaining our upward revision,” he said during the press conference.
But the U.S. economic growth will be somewhat weaker in 2021. The IMF revised down its growth projections for next year to 3.1 percent from 4.5 percent, assuming that there would be no additional federal government aid. These projections don’t assume “serious disruption” from the upcoming presidential election.
“Further increase in growth in the U.S. has positive spillovers to the rest of the world,” Gopinath said.
Support provided by the Federal Reserve, she added, helped stabilize international financial markets and gave more breathing space for emerging markets.
The IMF released its new world economic outlook report as part of this week’s annual meetings of the IMF and World Bank. The report titled “A Long and Difficult Ascent” still presents a “deep recession” for the global economy but “somewhat less severe” than projected in June.
The global economy now is projected to contract by 4.4 percent this year, compared to an earlier estimate of a 5.2 percent drop. And the world economy is projected to rebound by 5.2 percent next year.
“Close to 90 million people are expected to fall into extreme deprivation this year,” the IMF report stated. “These are difficult times, yet there are some reasons to be hopeful.”
Gopinath said the global fiscal support, which has reached $12 trillion this year, combined with unprecedented actions by central banks around the world has prevented a financial catastrophe.
The IMF predicts that local transmission of COVID-19 will fall by the end of 2022 and hence there remains more work from governments to ensure a sustained recovery.
The organization called for more fiscal stimulus to limit economic damage and greater international collaboration to end the health crisis.