The International Monetary Fund revised upwards its estimate for global growth in 2020. However it warned of a long and asymmetric recovery with uncertainties, in which Spain will be the developed economy which declines most in the year. So the agency now expects world GDP to fall by 4.4% in 2020 (vs a decline of 4.9% in June). This is thanks to the improved performance from China, the only country which will grow in 2020, with a forecast of +1.9%, and some developed economies. In fact, the best revision is for the US, which mproves to -4,3% in 2020 in comparison with the previous -8% in June. As for Spain, the IMF forecasts a fall of 12.8% in 2020, leading the developed world, to recover 7.2% in 2021.
For 2021, it slightly reduces the global growth expected to +5.2% vs +5.4% previously. The agency expects that social distancing will continue in 2021 and that local transmission of the virus will not be reduced until 2022.
According to Bankinter, the IMF sees a greater acceleration than estimated after the global confinements. However, uncertainty remains high.
“Of particular concern is the estimated increase in the global unemployment rate. The rise in unemployment will reduce tax revenues and the payment of public debt will require a greater effort. In the case of the emerging countries, the greatest concern is their ability to finance themselves if financial sentiment deteriorates in the coming months.”
In this context, the IMF believes it is necessary to maintain the stimuli as long as required, and it assumes the ultra-expansive monetary policy is sustained until 2025. Direct fiscal support already amounts to $6 billion globally.
The fall in Spain’s GDP in 2020 is more than double that expected for the advanced countries as a whole (-5.8%) and is three times greater than that estimated for the global economy (-4.4%). Amongst the largest economies in the world, only Italy, with an estimated fall in GDP of 10.6% and India, with a drop of 10.3%, will register negative double-digit growth. But significantly lower than that of Spain.
Furthermore, the IMF expects the Spanish economy to close Q4’20 with a contraction of 10.8%, while it will close Q4’21 with growth of 6.6%. That said, this will depend on the European Union’s Recovery and Resilience Mechanism. The agency also notes that it does not expect Spain’s GDP to recover its pre-pandemic levels until at least 2023. Unemployment will not begin to fall until 2022. In both 2020 and 2021 the rate will be 16.8% in Spain. Public debt could already be over 120% of GDP by 2022, so it will be necessary to implement a gradual, consensual fiscal adjustment to ensure a strong downward path.
Spain has therefore fallen behind in 2020. According to Link Securities:
“This fact is reflected in the Spanish stock market’s performance so far this year, with the Ibex-35 also at the bottom of the main stock market indexes.”