GLOBAL ECONOMIC OUTLOOK WORSENS, IMF WARNS. The International Monetary Fund (IMF) again sharpened its forecast for the global economy’s contraction to -4.9 percent this year from the -3 percent it predicted in April. It also downgraded its 2021 worldwide growth projection from 5.8 percent to 5.4.
“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 wrote in its World Economic Outlook on 25 June.
The U.S. economy will shrink 8 percent this year, not the 5.9 percent the IMF had forecast in April. The Eurozone will contract by 10.2 percent, Brazil by 9.1 percent, Mexico by 10.5 percent, and South Africa by 9.1 percent, the fund said.
Social distancing and ongoing lockdowns in some areas and industries will hobble the recovery, the IMF added.
The loss of jobs has been “catastrophic,” the agency noted, calculating that the lost work hours during this year’s current quarter will be equivalent to the loss of 300 million full-time jobs.
Job losses have been heaviest among women and low-skilled workers.
The fund also highlighted the risks inherent in ballooning government debt, which it predicts will reach a record 101.5 percent of global GDP in 2020 and 2021. This year’s worldwide annual government deficit is likely to reach 13.9 percent of GDP, compared to 3.9 last year.
But many of the world’s stock markets have become untethered to these gloomy economic realities and risk a correction, the IMF warned in Global Financial Stability report, also released 25 June.
A correction is defined as a price drop of 10 percent or more from recent high prices.
For example, after crashing in March, U.S. stocks entered a new bull market, with the S&P 500 stock index logging its biggest 50-day run-up in history by early June.
Asian and European markets also have recovered much of their losses after markets cratered at the beginning of the pandemic and resulting economic shutdown.
Markets are failing to reflect the realities of massive global unemployment, the prospect of a sluggish recovery, social unrest around issues of systemic inequality, and the COVID virus’s refusal to weaken, the IMF’s report said.
“According to IMF staff models, the difference between market prices and fundamental valuations is near historic highs across most major advanced economy equity and bond markets, though the reverse is true for stocks in some emerging market economies,” it said.
“This disconnect between markets and the real economy raises the risk of another correction… should investor risk appetite fade, posing a threat to the recovery.”
The report noted that “nonbank” financial companies, such as hedge funds and leveraged buyout firms, could worsen any market slump by dumping stocks as prices fall, driving down prices further.
The precarious tower of corporate and household debt also threatens financial stability and, in a downturn, could drive some banks toward insolvency, the IMF said.
PUBLISHER’S NOTE: Goldman Sachs and investment giant BlackRock have now issued cautions about U.S. stocks, stating that prices exceed earnings by unrealistic amounts and the lingering pandemic and uncertainties around the U.S. election could shrink share prices.
Believers in “Sadomaskism,” the Goldman Gang’s chief economist Jan Hatzius said in a note to clients, “Our baseline estimate is that a national mandate could raise the percentage of people who wear masks by 15 [percentage points] and cut the daily growth rate of confirmed cases by 1.0 [percentage point] to 0.6%.”
“These calculations imply that a face mask mandate could potentially substitute for lockdowns that would otherwise subtract nearly 5% from GDP,” the economist added.
As we used to say in The Bronx, in talking about boys like Hatzius who arrogantly promote their logic based up selected data, “Bullshit has its own sound.”
The Economy is Dead. The politicians killed it with their COVID War.
