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(EDITORIAL from Korea Times on April 16)

All News 07:21 April 16, 2020

Worst outlook since 1930
: IMF calls for fiscal expansion for stimulus

The International Monetary Fund (IMF) has painted a bleak picture about the global economy which is predicted to contract 3 percent this year. This gloomy forecast is a direct result of the coronavirus pandemic's crippling impact on economic activities worldwide.

"It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago," the IMF said Tuesday in its 2020 World Economic Outlook. It cited the virus-driven "Great Lockdown" as the reason for the steep worldwide shrinkage in growth.

However, the international organization expects the world economy to grow 5.8 percent in 2021. Of course, this anticipated recovery will depend on the course of the novel coronavirus. This means the IMF based its prediction on the relatively optimistic assumption that COVID-19 will peak during the second quarter of 2020 and fade in the latter half of the year.

For this reason, the IMF does not rule out the possibility of the global economy suffering an additional 3 percent contraction this year if the public health crisis persists into the third quarter. It also warns that a possible second wave of infections throughout the world next year will retard the economic recovery, prompting a contraction of 5 percentage points to 8 percentage points in its 2021 growth outlook.

Such a bleak prediction is not surprising, given the scope and severity of the unprecedented pandemic. What matters is how to contain the virus outbreak and minimize its economic fallout. Most of all, countries around the world should step up solidarity and cooperation in fighting COVID-19. They also must make joint coordinated efforts to avoid the worst-case economic scenario and speed up a recovery in growth.

As the IMF stressed, each country needs to undertake bolder fiscal expansion and monetary easing to prevent an economic collapse and boost growth momentum. That's why IMF Managing Director Kristalina Georgieva said last week that the roughly $8 trillion in fiscal stimuli committed to by governments appears to be insufficient.

It is somewhat of a relief to see the IMF predict the South Korean economy will contract 1.2 percent this year, a relatively milder downturn compared with the global outlook. The reduction is, however, the first of its kind since 1998 when the country was hit hard by the Asian financial crisis. The IMF acknowledged Korea's consistent efforts to stem the spread of the coronavirus and quick economic policy responses which have helped mitigate the shock on domestic activity.

However, the country still faces growing downside risks as its export-reliant economy may suffer a sizable decline in overseas shipments to major trading partners such as China, the U.S. and the EU. The IMF forecast economic contractions of 5.9 percent for the U.S., 7.5 percent for the Eurozone countries, and 5.2 percent for Japan. China and India are predicted to enjoy real growth of 1.2 percent and 1.9 percent respectively.

The Moon Jae-in administration has decided to provide up to 150 trillion won ($123 billion) in fiscal support for hard-hit businesses and individuals, including an economic rescue package worth 100 trillion won. It needs to increase the sum and take proactive and pre-emptive measures to avoid a perfect storm.
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