The global economy is climbing out from the depths to which it had plummeted during the Great Lockdown in April. But with the COVID-19 pandemic continuing to spread, many countries have slowed reopening and some are reinstating partial lockdowns to protect susceptible populations. While recovery in China has been faster than expected, the global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks.

Title Page



A Long and Difficult Ascent

2020 OCT

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©2020 International Monetary Fund

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Cataloging-in-Publication Data Joint Bank-Fund Library

Names: International Monetary Fund.

Title: World economic outlook (International Monetary Fund)

Other titles: WEO | Occasional paper (International Monetary Fund) | World economic and financial surveys.

Description: Washington, DC : International Monetary Fund, 1980- | Semiannual | Some issues also have thematic titles. | Began with issue for May 1980. | 1981–1984: Occasional paper / International Monetary Fund, 0251–6365 | 1986-: World economic and financial surveys, 0256–6877.

Identifiers: ISSN 0256–6877 (print) | ISSN 1564–5215 (online)

Subjects: LCSH: Economic development—Periodicals. | International economic relations— Periodicals. | Debts, External—Periodicals. | Balance of payments—Periodicals. | International finance—Periodicals. | Economic forecasting—Periodicals.

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ISBN 978-1-51355-605-5 (English Paper)

978-1-51355-814-1 (English ePub)

978-1-51355-815-8 (English PDF)

The World Economic Outlook (WEO) is a survey by the IMF staff published twice a year, in the spring and fall. The WEO is prepared by the IMF staff and has benefited from comments and suggestions by Executive Directors following their discussion of the report on September 30, 2020. The views expressed in this publication are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Directors or their national authorities.

Recommended citation: International Monetary Fund. 2020. World Economic Outlook: A Long and Difficult Ascent. Washington, DC, October.

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Correction to Figure 1.14 (page 13): The data for this figure was incorrect upon initial publication. This PDF (issued on Oct. 16, 2020) contains the corrected Figure 1.14.


  • Assumptions and Conventions
  • Further Information
  • Data
  • Preface
  • Foreword
  • Executive Summary
  • Chapter 1. Global Prospects and Policies
    • Global Economy Climbing Out of the Depths, Prone to Setbacks
    • Considerations for the Forecast
    • Partial Recovery from Deep Recession Expected in 2021
    • Medium-Term Growth Reflects Damage to Supply Potential
    • Inflation Is Expected to Remain Low
    • Subdued Trade Flows, Smaller Deficits and Surpluses
    • Significant Risks of More Severe Growth Outcomes
    • Near-Term Policy Priorities: Ensure Adequate Resources for Health Care, Limit Economic Damage
    • Enhancing Multilateral Cooperation
    • Policies to Address Medium- and Long-Term Challenges
    • Scenario Box 1. Alternative Scenarios
    • Box 1.1. Revised World Economic Outlook Purchasing-Power-Parity Weights
    • Box 1.2. Inclusiveness in Emerging Market and Developing Economies and the Impact of COVID-19
    • Box 1.3. Rising Small and Medium Enterprise Bankruptcy and Insolvency Risks: Assessment and Policy Options
    • Box 1.4. Social Unrest during COVID-19 Special Feature: Commodity Market Developments and Forecasts
    • Box 1.SF.1. What Happened with Global Carbon Emissions in 2019?
    • References
  • Chapter 2. The Great Lockdown: Dissecting the Economic Effects
    • Introduction
    • Cross-Country Evidence on Lockdowns and Economic Activity
    • Assessing the Impact of Lockdowns Using High-Frequency Data
    • The Unequal Effects of Lockdowns across Gender and Age Groups
    • Lockdowns and COVID-19 Infections
    • Individual Lockdown Measures and Nonlinear Effects
    • Conclusions
    • Box 2.1. An Overview of the Literature on the Economic Impact of Lockdowns
    • Box 2.2. The Role of Information Technology Adoption during the COVID-19 Pandemic: Evidence from the United States
    • References
  • Chapter 3. Mitigating Climate Change—Growth- and Distribution-Friendly Strategies
    • Introduction
    • The Mitigation Toolkit: How Have Policies Worked So Far?
    • How to Reach Net Zero Emissions by 2050
    • How to Build Inclusion
    • Conclusion
    • Box 3.1. Glossary
    • Box 3.2. Zooming In on the Electricity Sector: The First Step toward Decarbonization
    • References
  • Tables
    • Table 1.1. Overview of the World Economic Outlook Projections
    • Table 1.2. Overview of the World Economic Outlook Projections at Market Prices
    • Table 1.1.1. Changes in World GDP Shares from Purchasing-Power-Parity Revisions
    • Table 1.1.2. Revisions to Real GDP Growth of World Economic Outlook Aggregates
    • Table 1.4.1. Cross-Sectional Regressions
    • Table 1.4.2. Dynamic Regressions: Epidemics
    • Table 1.SF.1. Coal Consumption, by Sector
    • Table 1.SF.2. Energy Mix, by Income Groups, 2017
    • Table 1.SF.3. Selected Recent Fast Coal Phaseouts
    • Annex Table 1.1.1. European Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
    • Annex Table 1.1.2. Asian and Pacific Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
    • Annex Table 1.1.3. Western Hemisphere Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
    • Annex Table 1.1.4. Middle Eastern and Central Asian Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment Annex
    • Table 1.1.5. Sub-Saharan African Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment Annex
    • Table 1.1.6. Summary of World Real per Capita Output
  • Online Tables—Statistical Appendix
    • Table B1. Advanced Economies: Unemployment, Employment, and Real GDP per Capita
    • Table B2. Emerging Market and Developing Economies: Real GDP
    • Table B3. Advanced Economies: Hourly Earnings, Productivity, and Unit Labor Costs in Manufacturing
    • Table B4. Emerging Market and Developing Economies: Consumer Prices
    • Table B5. Summary of Fiscal and Financial Indicators
    • Table B6. Advanced Economies: General and Central Government Net Lending/Borrowing and General Government Net Lending/Borrowing Excluding Social Security Schemes
    • Table B7. Advanced Economies: General Government Structural Balances
    • Table B8. Emerging Market and Developing Economies: General Government Net Lending/Borrowing and Overall Fiscal Balance
    • Table B9. Emerging Market and Developing Economies: General Government Net Lending/Borrowing
    • Table B10. Selected Advanced Economies: Exchange Rates
    • Table B11. Emerging Market and Developing Economies: Broad Money Aggregates
    • Table B12. Advanced Economies: Export Volumes, Import Volumes, and Terms of Trade in Goods and Services
    • Table B13. Emerging Market and Developing Economies by Region: Total Trade in Goods
    • Table B14. Emerging Market and Developing Economies by Source of Export Earnings: Total Trade in Goods
    • Table B15. Summary of Current Account Transactions
    • Table B16. Emerging Market and Developing Economies: Summary of External Debt and Debt Service
    • Table B17. Emerging Market and Developing Economies by Region: External Debt by Maturity
    • Table B18. Emerging Market and Developing Economies by Analytical Criteria: External Debt by Maturity
    • Table B19. Emerging Market and Developing Economies: Ratio of External Debt to GDP
    • Table B20. Emerging Market and Developing Economies: Debt-Service Ratios
    • Table B21. Emerging Market and Developing Economies, Medium-Term Baseline Scenario: Selected Economic Indicators
  • Figures
    • Figure 1.1. Industrial Production and Retail Sales
    • Figure 1.2. Global Activity Indicators
    • Figure 1.3. Government Lockdowns and Economic Responses to COVID-19: Global Index
    • Figure 1.4. Commodity Prices
    • Figure 1.5. Global Inflation
    • Figure 1.6. Sectoral Growth and the Business Cycle
    • Figure 1.7. Purchasing Managers’ Indices, 2020
    • Figure 1.8. Advanced Economies: Monetary and Financial Market Conditions
    • Figure 1.9. Emerging Market Economies: Monetary and Financial Conditions
    • Figure 1.10. Emerging Market Economies: Capital Flows
    • Figure 1.11. Real Effective Exchange Rate Changes, April–September 2020
    • Figure 1.12. GDP Losses: 2019–21 versus 2019–25
    • Figure 1.13. Per Capita GDP: Cumulative Growth, 2019–25
    • Figure 1.14. Ratio of Public Debt Service Costs to Government Tax Revenue
    • Figure 1.15. Change in Income Inequality since 1990
    • Figure 1.16. Contribution to Headline Inflation
    • Figure 1.17. Five-Year, Five-Year Inflation Swaps
    • Figure 1.18. Global Trade Volume Growth, Global Outward Foreign Direct Investment, and Travel-Related Trade Services
    • Figure 1.19. Current Account and International Investment Positions
    • Figure 1.20. Fiscal Stance, 2019–21
    • Figure 1.21. Geopolitical Risk Index
    • Figure 1.22. Share of World Imports Affected by Countries’ Own Import Restrictions
    • Figure 1.23. Policy Uncertainty and Trade Tensions
    • Figure 1.24. Output Gap Projections, 2020–23
    • Scenario Figure 1. Alternative Evolutions in the Fight against the COVID-19 Virus
    • Scenario Figure 2. Downside and Upside Scenarios: Global Real GDP
    • Figure 1.1.1. Purchasing-Power-Parity Revision for China
    • Figure 1.2.1. Positive Developments
    • Figure 1.2.2. Remaining Gaps
    • Figure 1.2.3. Telework Ability and Income Inequality
    • Figure 1.2.4. Beyond GDP Welfare Growth
    • Figure 1.3.1. Small and Medium Enterprises’ Liquidity and Solvency Concerns under COVID-19 in 2020
    • Figure 1.3.2. Change in Share of Small and Medium Enterprises with Negative Equity, by Policy Scenario and Region
    • Figure 1.4.1. Monthly Share of Countries Experiencing Unrest Implied by the Reported Social Unrest Index
    • Figure 1.4.2. Daily Protest Articles for the United States, April–June 2020
    • Figure 1.SF.1. Commodity Market Developments
    • Figure 1.SF.2. Oil Storage Capacity Utilization Rates
    • Figure 1.SF.3. Global Driving and Walking Mobility Indices
    • Figure 1.SF.4. Commodity Prices during the COVID-19 Pandemic
    • Figure 1.SF.5. Coal, 1850–2017
    • Figure 1.SF.6. Decomposition of Change in World Coal Intensity
    • Figure 1.SF.7. Coal Consumption, by Country
    • Figure 1.SF.8. Emission Factors
    • Figure 1.SF.9. Average Annual Carbon Dioxide Emissions
    • Figure 1.SF.10. Coal Phaseouts
    • Figure 1.SF.11. Levelized Cost of Electricity for New Investment, 2019
    • Figure 1.SF.12. Contribution to European Electricity Generation Growth
    • Figure 1.SF.13. Coal and Natural Gas Prices in 2020
    • Figure 1.SF.1.1. Contribution to World Emissions, by Country/Region
    • Figure 1.SF.1.2. Contribution to World Emissions, by Source
    • Figure 2.1. Lockdowns and Economic Activity
    • Figure 2.2. The Impact of Lockdowns and Voluntary Social Distancing on Mobility
    • Figure 2.3. Further Insights into the Impact of Lockdowns on Mobility
    • Figure 2.4. The Impact of Lockdowns and Voluntary Social Distancing on Job Postings
    • Figure 2.5. Job Postings, by Sector, around Stay-at-Home Orders
    • Figure 2.6. Differentiating the Mobility Impact of Lockdowns by Gender and Age Group
    • Figure 2.7. The Impact of Lockdowns on COVID-19 Infections
    • Figure 2.8. Individual Lockdown Measures and Nonlinear Effects
    • Figure 2.2.1. The Dampening Effects of Information Technology Adoption on US Unemployment
    • Figure 3.1. Risks from Unmitigated Climate Change
    • Figure 3.2. Environmental Policies and Share of Clean Innovation and Electricity Generation
    • Figure 3.3. Effect of Policy Tightening on Electricity Innovation, Electricity Generation, and Employment, by Type of Technology
    • Figure 3.4. G-Cubed Model Simulations, Baseline
    • Figure 3.5. Global Temperature and CO2 Emissions
    • Figure 3.6. G-Cubed Model Simulations of Comprehensive Policy Package, Global Results
    • Figure 3.7. Medium- to Long-Term Output Gains from Climate Change Mitigation
    • Figure 3.8. Job Multipliers
    • Figure 3.9. G-Cubed Model Simulations of Comprehensive Policy Package, Cross-Country Differences
    • Figure 3.10. G-Cubed Model Simulations, Partial Participation in Mitigation
    • Figure 3.11. Role of Green Technological Progress
    • Figure 3.12. Potential for Emission Reductions in the Electricity Sector
    • Figure 3.13. Distribution of Consumption, Employment, and Impact of Carbon Taxes
    • Figure 3.14. Public Opinion in Support of Environmental Protection
    • Figure 3.15. Distributional Impact of Feebates
    • Figure 3.2.1. Decarbonization of the Electricity Sector

Assumptions and Conventions

A number of assumptions have been adopted for the projections presented in the World Economic Outlook (WEO). It has been assumed that real effective exchange rates remained constant at their average levels during July 24 to August 21, 2020, except for those for the currencies participating in the European exchange rate mechanism II (ERM II), which are assumed to have remained constant in nominal terms relative to the euro; that established policies of national authorities will be maintained (for specific assumptions about fiscal and monetary policies for selected economies, see Box A1 in the Statistical Appendix); that the average price of oil will be $41.69 a barrel in 2020 and $46.70 a barrel in 2021 and will remain unchanged in real terms over the medium term; that the six-month London interbank offered rate (LIBOR) on US dollar deposits will average 0.7 percent in 2020 and 0.4 percent in 2021; that the three-month euro deposit rate will average –0.4 percent in 2020 and –0.5 percent in 2021; and that the six-month Japanese yen deposit rate will yield, on average, 0.0 percent in 2020 and 2021. These are, of course, working hypotheses rather than forecasts, and the uncertainties surrounding them add to the margin of error that would, in any event, be involved in the projections. The estimates and projections are based on statistical information available through September 28, 2020.

The following conventions are used throughout the WEO:

... to indicate that data are not available or not applicable;

– between years or months (for example, 2019–20 or January–June) to indicate the years or months covered, including the beginning and ending years or months; and

/ between years or months (for example, 2019/20) to indicate a fiscal or financial year.

“Billion” means a thousand million; “trillion” means a thousand billion.

“Basis points” refers to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).

Data refer to calendar years, except in the case of a few countries that use fiscal years. Please refer to Table F in the Statistical Appendix, which lists the economies with exceptional reporting periods for national accounts and government finance data for each country.

For some countries, the figures for 2019 and earlier are based on estimates rather than actual outturns. Please refer to Table G in the Statistical Appendix, which lists the latest actual outturns for the indicators in the national accounts, prices, government finance, and balance of payments indicators for each country.

What is new in this publication:

  • Following the recent release of the 2017 International Comparison Program (ICP) survey for new purchasing-power-parity benchmarks, the WEO’s estimates of purchasing-power-parity weights and GDP valued at purchasing power parity have been updated. For more details, see Box 1.1 in the October 2020 WEO at http://www.imf.org/external/pubs/ft/weo/2020/02/index.htm.
  • Starting with the October 2020 WEO, data and forecasts for Bangladesh and Tonga are presented on a fiscal year basis.
  • Data for West Bank and Gaza are now included in the WEO. West Bank and Gaza is added to the Middle East and Central Asia regional group.

In the tables and figures, the following conventions apply:

  • If no source is listed on tables and figures, data are drawn from the WEO database.
  • When countries are not listed alphabetically, they are ordered on the basis of economic size.
  • Minor discrepancies between sums of constituent figures and totals shown reflect rounding.

As used in this report, the terms “country” and “economy” do not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.

Composite data are provided for various groups of countries organized according to economic characteristics or region. Unless noted otherwise, country group composites represent calculations based on 90 percent or more of the weighted group data.

The boundaries, colors, denominations, and any other information shown on the maps do not imply, on the part of the IMF, any judgment on the legal status of any territory or any endorsement or acceptance of such boundaries.

Further Information

Corrections and Revisions

The data and analysis appearing in the World Economic Outlook (WEO) are compiled by the IMF staff at the time of publication. Every effort is made to ensure their timeliness, accuracy, and completeness. When errors are discovered, corrections and revisions are incorporated into the digital editions available from the IMF website and on the IMF eLibrary (see below). All substantive changes are listed in the online table of contents.

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The data appearing in the WEO are compiled by the IMF staff at the time of the WEO exercises. The historical data and projections are based on the information gathered by the IMF country desk officers in the context of their missions to IMF member countries and through their ongoing analysis of the evolving situation in each country. Historical data are updated on a continual basis as more information becomes available, and structural breaks in data are often adjusted to produce smooth series with the use of splicing and other techniques. IMF staff estimates continue to serve as proxies for historical series when complete information is unavailable. As a result, WEO data can differ from those in other sources with official data, including the IMF’s International Financial Statistics.

The WEO data and metadata provided are “as is” and “as available,” and every effort is made to ensure their timeliness, accuracy, and completeness, but these cannot be guaranteed. When errors are discovered, there is a concerted effort to correct them as appropriate and feasible. Corrections and revisions made after publication are incorporated into the electronic editions available from the IMF eLibrary (www.elibrary.imf.org) and on the IMF website (www.imf.org). All substantive changes are listed in detail in the online tables of contents.

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The analysis and projections contained in the World Economic Outlook are integral elements of the IMF’s surveillance of economic developments and policies in its member countries, of developments in international financial markets, and of the global economic system. The survey of prospects and policies is the product of a comprehensive interdepartmental review of world economic developments, which draws primarily on information the IMF staff gathers through its consultations with member countries. These consultations are carried out in particular by the IMF’s area departments—namely, the African Department, Asia and Pacific Department, European Department, Middle East and Central Asia Department, and Western Hemisphere Department— together with the Strategy, Policy, and Review Department; the Monetary and Capital Markets Department; and the Fiscal Affairs Department.

The analysis in this report was coordinated in the Research Department under the general direction of Gita Gopinath, Economic Counsellor and Director of Research. The project was directed by Gian Maria Milesi- Ferretti, Deputy Director, Research Department, and Malhar Nabar, Division Chief, Research Department; Oya Celasun, Division Chief, Research Department directed Chapter 3.

The primary contributors to this report are Philip Barrett, John Bluedorn, Christian Bogmans, Benjamin Carton, Francesca Caselli, Johannes Eugster, Francesco Grigoli, Florence Jaumotte, Toh Kuan, Weicheng Lian, Weifeng Liu, Adil Mohommad, Andrea Pescatori, Evgenia Pugacheva, Damiano Sandri, Marina Tavares, Nico Valckx, and Simon Voigts.

Other contributors include Gavin Asdorian, Srijoni Banerjee, Eric Bang, Thomas Brand, Luisa Calixto, Sophia Chen, Wenjie Chen, Gabriela Cugat, Sonali Das, Federico Diez, Angela Espiritu, Niels-Jakob Hansen, Jinjin He, Mandy Hemmati, Youyou Huang, Benjamin Hunt, Christopher Johns, Jaden Jonghyuk Kim, Lama Kiyasseh, Eduard Laurito, Jungjin Lee, Claire Mengyi Li, Chiara Maggi, Susanna Mursula, Futoshi Narita, Savannah Newman, Cynthia Nyanchama Nyakeri, Emory Oakes, Nicola Pierri, Yiyuan Qi, Daniela Rojas Fernandez, Max Rozycki, Susie Xiaohui Sun, Nicholas Tong, Shan Wang, Julia Xueliang Wang, Yarou Xu, Hannah Leheng Yang, and Huiyuan Zhao.

Joseph Procopio from the Communications Department led the editorial team for the report, with production and editorial support from Christine Ebrahimzadeh, and editorial assistance from Lucy Scott Morales, James Unwin, Harold Medina (and team), and Vector Talent Resources.

The analysis has benefited from comments and suggestions by staff members from other IMF departments, as well as by Executive Directors following their discussion of the report on September 30, 2020. However, both projections and policy considerations are those of the IMF staff and should not be attributed to Executive Directors or to their national authorities.


More than one million lives have been lost to COVID-19 since the start of the year and the toll continues to rise. Many more have suffered serious illness. Close to 90 million people are expected to fall into extreme deprivation this year.

These are difficult times, yet there are some reasons to be hopeful. Testing has been ramped up, treatments are improving, and vaccine trials have proceeded at an unprecedented pace, with some now in the final stage of testing. International solidarity has strengthened along some dimensions, from rolling back trade restrictions on medical equipment to enhancing financial assistance for vulnerable countries. And recent data suggest that many economies have started to recover at a faster pace than anticipated after reopening from the Great Lockdown.

We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast. The revision is driven by second quarter GDP outturns in large advanced economies, which were not as negative as we had projected; China’s return to growth, which was stronger than expected; and signs of a more rapid recovery in the third quarter. Outturns would have been much weaker if it weren’t for sizable, swift, and unprecedented fiscal, monetary, and regulatory responses that maintained disposable income for households, protected cash flow for firms, and supported credit provision. Collectively these actions have so far prevented a recurrence of the financial catastrophe of 2008–09.

While the global economy is coming back, the ascent will likely be long, uneven, and uncertain. Indeed, compared to our forecast in June, prospects have worsened significantly in some emerging market and developing economies where infections are rising rapidly. Consequently, emerging market and developing economies, excluding China, are projected to incur a greater loss of output over 2020–21 relative to the pre-pandemic projected path when compared to advanced economies. These uneven recoveries significantly worsen the prospects for global convergence in income levels.

Moreover, recovery is not assured while the pandemic continues to spread. With renewed upticks in COVID-19 infections in places that had reduced local transmission to low levels, re-openings have paused, and targeted shutdowns are being reinstated. Economies everywhere face difficult paths back to pre-pandemic activity levels.

Preventing further setbacks will require that policy support is not prematurely withdrawn. The path ahead will require skillful domestic policies that manage trade-offs between lifting near-term activity and addressing medium-term challenges. The October 2020 Global Financial Stability Report highlights such trade-offs for monetary policy. Sustaining the recovery will also require strong international cooperation on health and financial support for countries facing liquidity shortfalls. Finding the right policy mix is daunting, but the experience of the past few months provides grounds for cautious optimism that the priorities laid out in this report can be achieved.

A key aspect of combating the health crisis is to ensure that all innovations, be they in testing, treatments, or vaccines, are produced at scale for the benefit of all countries. Advance purchase commitments for vaccines under trial can help spur this process for manufacturers who may otherwise hesitate to bear the upfront cost. This effort should include a strong multilateral component to help distribute doses to all countries at affordable prices. More generally, the global community will need to continue helping countries with limited health care capacity through sharing equipment, know-how, and through financial support from international health agencies.

At the national level, governments have already responded with a variety of fiscal countermeasures that include efforts to cushion income losses, incentivize hiring, expand social assistance, guarantee credit, and inject equity into firms. These measures have prevented widespread firm bankruptcies and have helped employment rebound partially. Employment and labor force participation, however, remain well below pre-pandemic levels, and many more millions of jobs are at risk the longer this crisis continues. To preserve jobs, it is important for governments, where possible, to continue to support viable but still vulnerable firms with moratoria on debt service and equity-like support. Over time, once the recovery has taken a strong hold, policies should shift gradually to facilitating reallocation of workers from sectors likely to shrink on a long-term basis (travel) to growing sectors (e-commerce). Along the transition, workers will need to be supported, including through income transfers, retraining, and reskilling programs.

Advanced economies have generally been able to deliver larger direct spending and liquidity support relative to GDP than others constrained by elevated debt and higher borrowing costs. Those constrained countries will need to create room for immediate spending needs by prioritizing crisis countermeasures and reducing poorly targeted subsidies. Some will require additional help from creditors and donors through debt restructuring, grants, and concessional financing, building on important initiatives under way. The IMF has been central to these initiatives through its joint call with the World Bank on debt service suspension for low-income countries, its call for reform of the international debt architecture, and its extension of funding at unprecedented speed to several member countries.

Further complicating the task that countries face is the need to address challenges coming out of the pandemic. In this report we are releasing medium-term growth projections for the first time since the crisis started. While uncertainty remains substantial, growth is expected to moderate significantly, following the projected rebound in global activity in 2021. Both advanced and emerging market economies are likely to register significant losses of output relative to their pre-pandemic forecasts. Small states as well as tourism-dependent and commodities-based economies are in a particularly difficult spot.

Most economies will experience lasting damage to supply potential, reflecting scars from the deep recession this year and the need for structural change. The persistent output losses imply a major setback to living standards relative to what was expected before the pandemic. Not only will the incidence of extreme poverty rise for the first time in over two decades, but inequality is set to increase because the crisis has disproportionately affected women, the informally employed, and those with relatively lower educational attainment, as discussed in Chapter 2 of this report. The loss of human capital accumulation after widespread school closures poses an additional challenge.

Moreover, sovereign debt levels are set to increase significantly even as downgrades to potential output imply a smaller tax base that makes it harder to service the debt. On the plus side, the prospects of low interest rates over a longer period, alongside the projected rebound in growth in 2021, can help alleviate debt service burdens in many countries. 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.

Near-term support policies should be designed with a view toward placing economies on paths of stronger, equitable, and sustainable growth. As discussed in Chapter 3 of this report, policymakers can simultaneously aim to mitigate climate change and bolster the recovery from the COVID-19 crisis. This can be achieved through a comprehensive package that includes a sizable green public infrastructure push, a gradual rise in carbon prices, and compensation for lower income households to make the transition fair. More generally, expanding the safety net where gaps exist can ensure the most vulnerable are protected while supporting near-term activity, as already seen, for example, in many advanced economies where disposable income remained relatively stable even as GDP registered record collapses. And investments in health and education (including to remedy losses incurred during the pandemic) can help achieve participatory and inclusive growth. The October 2020 Fiscal Monitor makes a strong case for public investment in these times of heightened uncertainty.

We have already had significant policy innovations in the past few months: the establishment of the European Union pandemic recovery package fund, the launch of asset purchases by emerging market central banks, and the novel use of digital technologies to deliver social assistance in places like sub-Saharan Africa. Such actions have prevented even more extreme collapses and are a powerful reminder that effective, well-designed policies protect people and collective economic well-being. Building on these actions, policies for the next stage of the crisis must seek lasting improvements in the global economy that create secure, prosperous futures for all.

Gita Gopinath Economic Counsellor and Director of Research

Executive Summary

The global economy is climbing out from the depths to which it had plummeted during the Great Lockdown in April. But with the COVID-19 pandemic continuing to spread, many countries have slowed reopening and some are reinstating partial lockdowns to protect susceptible populations. While recovery in China has been faster than expected, the global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks.

Global Growth Outlook and Risks

Near-term outlook. Global growth is projected at -4.4 percent in 2020, a less severe contraction than forecast in the June 2020 World Economic Outlook (WEO) Update. The revision reflects better- than-anticipated second quarter GDP outturns, mostly in advanced economies, where activity began to improve sooner than expected after lockdowns were scaled back in May and June, as well as indicators of a stronger recovery in the third quarter. Global growth is projected at 5.2 percent in 2021, a little lower than in the June 2020 WEO Update, reflecting the more moderate downturn projected for 2020 and consistent with expectations of persistent social distancing. Following the contraction in 2020 and recovery in 2021, the level of global GDP in 2021 is expected to be a modest 0.6 percent above that of 2019. The growth projections imply wide negative output gaps and elevated unemployment rates this year and in 2021 across both advanced and emerging market economies.

Medium-term outlook. After the rebound in 2021, global growth is expected to gradually slow to about 3.5 percent into the medium term. This implies only limited progress toward catching up to the path of economic activity for 2020–25 projected before the pandemic for both advanced and emerging market and developing economies. It is also a severe setback to the projected improvement in average living standards across all country groups. The pandemic will reverse the progress made since the 1990s in reducing global poverty and will increase inequality. People who rely on daily wage labor and are outside the formal safety net faced sudden income losses when mobility restrictions were imposed. Among them, migrant workers who live far from home had even less recourse to traditional support networks. Close to 90 million people could fall below the $1.90 a day income threshold of extreme deprivation this year. In addition, school closures during the pandemic pose a significant new challenge that could set back human capital accumulation severely.

The subdued outlook for medium-term growth comes with a significant projected increase in the stock of sovereign debt. Downward revisions to potential output also imply a smaller tax base over the medium term than previously envisaged, compounding difficulties in servicing debt obligations.

The baseline projection assumes that social distancing will continue into 2021 but will subsequently fade over time as vaccine coverage expands and therapies improve. Local transmission is assumed to be brought to low levels everywhere by the end of 2022. The medium-term projections also assume that economies will experience scarring from the depth of the recession and the need for structural change, entailing persistent effects on potential output. These effects include adjustment costs and productivity impacts for surviving firms as they upgrade workplace safety, the amplification of the shock via firm bankruptcies, costly resource reallocation across sectors, and discouraged workers’ exit from the workforce. The scarring is expected to compound forces that dragged productivity growth lower across many economies in the years leading up to the pandemic— relatively slow investment growth weighing on physical capital accumulation, more modest improvements in human capital, and slower efficiency gains in combining technology with factors of production.

Risks. The uncertainty surrounding the baseline projection is unusually large. The forecast rests on public health and economic factors that are inherently difficult to predict. A first layer relates to the path of the pandemic, the needed public health response, and the associated domestic activity disruptions, most notably for contact-intensive sectors. Another source of uncertainty is the extent of global spillovers from soft demand, weaker tourism, and lower remittances. A third set of factors comprises financial market sentiment and its implications for global capital flows. Moreover, there is uncertainty surrounding the damage to supply potential—which will depend on the persistence of the pandemic shock, the size and effectiveness of the policy response, and the extent of sectoral resource mismatches.

Progress with vaccines and treatments, as well as changes in the workplace and by consumers to reduce transmission, may allow activity to return more rapidly to pre-pandemic levels than currently projected, without triggering repeated waves of infection. And an extension of fiscal countermeasures into 2021 could also lift growth above the forecast, which factors in only the measures implemented and announced so far.

However, the risk of worse growth outcomes than projected remains sizable. If the virus resurges, progress on treatments and vaccines is slower than anticipated, or countries’ access to them remains unequal, economic activity could be lower than expected, with renewed social distancing and tighter lockdowns. Considering the severity of the recession and the possible withdrawal of emergency support in some countries, rising bankruptcies could compound job and income losses. Deteriorating financial sentiment could trigger a sudden stop in new lending (or failure to roll over existing debt) to vulnerable economies. And cross-border spillovers from weaker external demand could amplify the impact of country-specific shocks.

Policy Priorities: Near-Term Imperatives, Medium-Term Challenges

Besides combating the deep near-term recession, policymakers have to address complex challenges to place economies on a path of higher productivity growth while ensuring that gains are shared evenly and debt remains sustainable. Many countries already face difficult trade-offs between implementing measures to support near-term growth and avoiding a further buildup of debt that will be hard to service down the road, considering the crisis’s hit to potential output. Policies to support the economy in the near term should therefore be designed with an eye to guiding economies to paths of stronger, equitable, and resilient growth.

Tax and spending measures should privilege initiatives that can help lift potential output, ensure participatory growth that benefits all, and protect the vulnerable. The additional debt incurred to finance such endeavors is more likely to pay for itself down the road by increasing the size of the economy and future tax base than if the borrowing were done to finance ill-targeted subsidies or wasteful current spending. Investments in health, education, and high-return infrastructure projects that also help move the economy to lower carbon dependence can further those objectives. Research spending can facilitate innovation and technology adoption—the principal drivers of long-term productivity growth. Moreover, safeguarding critical social spending can ensure that the most vulnerable are protected while also supporting near-term activity, given that the outlays will go to groups with a higher propensity to spend their disposable income than more affluent individuals. In all instances, adhering to the highest standards of debt transparency will be essential to avoid future rollover difficulties and higher sovereign risk premiums that raise borrowing costs across the economy.

Given the global nature of the shock and common challenges across countries, strong multilateral efforts are needed to fight the health and economic crisis. A key priority is funding advance purchase commitments at the global level for vaccines currently under trial to incentivize rapid scaling up of production and worldwide distribution of affordable doses (for example, by bolstering multilateral initiatives for vaccine development and manufacture, including the Coalition for Epidemic Preparedness Innovations and Gavi, the Vaccine Alliance). This is particularly important given the uncertainty and risk of failure in the search for effective and safe vaccines. A related priority is to help countries with limited health care capacity.

Beyond assistance with medical equipment and know-how, several emerging market and developing economies—in particular low-income countries—require support from the international community through debt relief, grants, and concessional financing. Where debt restructuring is needed, creditors and low-income-country and emerging market borrowers should quickly agree on mutually acceptable terms. The global financial safety net can further help countries deal with external funding shortfalls. Since the onset of the crisis, the IMF has expeditiously provided funding from its various lending facilities to about 80 countries at unprecedented speed.

For many countries, sustaining economic activity and helping individuals and firms most in need—while ensuring that debt remains sustainable—is a daunting task, given high public debt, the spending needs triggered by the crisis, and the hit to public revenues. Governments should do all that they can to combat the health crisis and mitigate the deep downturn while being ready to adjust policy strategy as the pandemic and its impact on activity evolve. Where fiscal rules may constrain action, their temporary suspension would be warranted, combined with a commitment to a gradual consolidation path after the crisis abates to restore compliance with the rules over the medium term. Room for immediate spending needs could be created by prioritizing crisis countermeasures and reducing wasteful and poorly targeted subsidies. Extending maturities on public debt and locking in low interest rates to the extent possible would help reduce debt service and free up resources to be redirected toward crisis mitigation efforts. Although adopting new revenue measures during the crisis will be difficult, governments may need to consider raising progressive taxes on more affluent individuals and those relatively less affected by the crisis (including increasing tax rates on higher income brackets, high-end property, capital gains, and wealth) as well as changes to corporate taxation that ensure firms pay taxes commensurate with profitability. Countries should also cooperate on the design of international corporate taxation to respond to the challenges of the digital economy.

With the pandemic continuing to spread, all countries— including those where infections appear to have peaked—need to ensure that their health care systems can cope with elevated demand. This means securing adequate resources and prioritizing health care spending as needed, including on testing; contact tracing; personal protective equipment; life- saving equipment, such as ventilators; and facilities, such as emergency rooms, intensive care units, and isolation wards.

Countries where infections continue to rise need to contain the pandemic with mitigation measures that slow transmission. As Chapter 2 shows, lockdowns are effective in bringing down infections. Mitigation measures—a much-needed investment in public health—set the stage for an eventual economic recovery from the downturn brought on by mobility constraints. Economic policy in such cases should limit the damage by cushioning income losses for affected people and firms while also supporting resource reallocation away from contact-intensive sectors that are likely to be constrained for an extended period of time. Retraining and reskilling should be pursued to the extent feasible so that workers can look for jobs in other sectors. Because the transition may take a while, displaced workers will need extended income support as they retrain and search for jobs. Complementing such measures, broad-based accommodative monetary and fiscal responses—where fiscal space exists—can help prevent deeper and longer- lasting downturns, even if their ability to stimulate spending is initially hampered by mobility restrictions.

As countries reopen, policies must support the recovery by gradually removing targeted support, facilitating the reallocation of workers and resources to sectors less affected by social distancing, and providing stimulus where needed to the extent possible. Some fiscal resources freed from targeted support should be redeployed to public investment—including in renewable energy, improving the efficiency of power transmission, and retrofitting buildings to reduce their carbon footprint. Moreover, as lifelines are unwound, social spending should be expanded to protect the most vulnerable where gaps exist in the safety net. In those cases, authorities could enhance paid family and sick leave, expand eligibility for unemployment insurance, and strengthen health care benefit coverage as needed. Where inflation expectations are anchored, accommodative monetary policy can help during the transition by containing borrowing costs.

Beyond the pandemic, multilateral cooperation is needed to defuse trade and technology tensions between countries and address gaps—for instance in services trade—in the rules-based multilateral trading system. Countries must also act collectively to implement their climate change mitigation commitments. As discussed in Chapter 3, joint action—particularly by the largest emitters—that combines steadily rising carbon prices with a green investment push is needed to reduce emissions consistent with limiting increases in global temperature to the targets of the 2015 Paris Agreement. A broadly adopted, growth-friendly mitigation package could raise global activity through investment in green infrastructure over the near term, with modest output costs over the medium term as economies transition away from fossil fuels toward cleaner technologies. Relative to unchanged policies, such a package would significantly boost incomes in the second half of the century by avoiding damages and catastrophic risks from climate change. Moreover, health outcomes would begin to improve immediately in many countries thanks to reduced local air pollution. The global community should also take urgent steps to strengthen its defenses against calamitous health crises, for example by augmenting stockpiles of protective equipment and essential medical supplies, financing research, and ensuring adequate ongoing assistance to countries with limited health care capacity, including through support of international organizations.