IMF Downgrades Outlook for Global Economy Amid Pandemic

In this March 19, 2020 file photo, a deserted construction site is pictured in Dardilly, near Lyon, central France. The virus crisis has triggered the worst global recession in nearly a century -- and the pain is not over yet even if there is no second wave of infections, an international economic report warned Wednesday. (AP Photo/Laurent Cipriani, File)
In this March 19, 2020 file photo, a deserted construction site is pictured in Dardilly, near Lyon, central France. The virus crisis has triggered the worst global recession in nearly a century -- and the pain is not over yet even if there is no second wave of infections, an international economic report warned Wednesday. (AP Photo/Laurent Cipriani, File)
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IMF Downgrades Outlook for Global Economy Amid Pandemic

In this March 19, 2020 file photo, a deserted construction site is pictured in Dardilly, near Lyon, central France. The virus crisis has triggered the worst global recession in nearly a century -- and the pain is not over yet even if there is no second wave of infections, an international economic report warned Wednesday. (AP Photo/Laurent Cipriani, File)
In this March 19, 2020 file photo, a deserted construction site is pictured in Dardilly, near Lyon, central France. The virus crisis has triggered the worst global recession in nearly a century -- and the pain is not over yet even if there is no second wave of infections, an international economic report warned Wednesday. (AP Photo/Laurent Cipriani, File)

The International Monetary Fund has sharply lowered its forecast for global growth this year because it envisions far more severe economic damage from the coronavirus than it did just two months ago.

The IMF predicts that the global economy will shrink 4.9% this year, significantly worse than the 3% drop it had estimated in its previous report in April. It would be the worst annual contraction since immediately after World War II.

For the United States, the IMF predicts that the nation's gross domestic product - the value of all goods and services produced in the United States - will plummet 8% this year, even more than its April estimate of a 5.9% drop. This, too, would be the worst such annual decline since the US economy demobilized in the aftermath of World War II.

The IMF issued its bleaker forecasts Wednesday in an update to the World Economic Outlook it released in April. The update is generally in line with other recent major forecasts. Earlier this month, for example, the World Bank projected that the global economy would shrink 5.2% this year.

The IMF noted that the pandemic was disproportionately hurting low-income households, "imperiling the significant progress made in reducing extreme poverty in the world since 1990."

In recent years, the proportion of the world´s population living in extreme poverty - equivalent to less than $1.90 a day - had fallen below 10% from more than 35% in 1990. But the IMF said the COVID-19 crisis threatens to reverse this progress. It forecast that more than 90% of developing and emerging market economies will suffer declines in per-capita income growth this year.

For 2021, the IMF envisions a rebound in growth, so long as the viral pandemic doesn´t erupt in a second major wave. It expects the global economy to expand 5.4% next year, 0.4 percentage point less than it did in April.

For the United States, the IMF predicts growth of 4.5% next year, 0.2 percentage point weaker than in its April forecast. But that gain wouldn´t be enough to restore the US economy to its level before the pandemic struck. The association of economists who officially date recessions in the United States determined that the economy entered a recession in February, with tens of millions of people thrown out of work from the shutdowns that were imposed to contain the virus.

The US government has estimated that the nation´s GDP shrank at a 5% annual rate in the January-March quarter, and it is widely expected to plunge at a 30% rate or worse in the current April-June period.

In its updated forecast, the IMF downgraded growth for all major countries. For the 19 European nations that use the euro currency, it envisions a decline in growth this year of 10.7% - more than the 8% drop it predicted in April - followed by a rebound to growth of 6% in 2021.

In China, the world´s second-largest economy, growth this year is projected at 1%. India´s economy is expected to shrink 4.5% after a longer period of lockdown and a slower recovery than was envisioned in April.

In Latin America, where most countries are still struggling to contain infections, the two largest economies, Brazil and Mexico, are projected to shrink 9.1% and 10.5%, respectively.

A steep fall in oil prices has triggered deep recessions in oil-producing countries, with the Russian economy expected to contract 6.6% this year and Saudi Arabia´s 6.8%.

The IMF cautioned that downside risks to the forecast remain significant. It said the virus could surge back, forcing renewed shutdowns and possibly renewed turmoil in financial markets similar to what occurred in January through March. The IMF warned that such financial turbulence could tip vulnerable countries into debt crises that would further hamper efforts to recover.

Its updated forecast included a downside scenario that envisions a second major outbreak occurring in early 2021. Under this scenario, the global economy would contract again next year by 4.9%, it estimates.



Dollar Drifts as Traders Grapple with Tariff Uncertainty, Volatility

A teller counts US dollar bank notes at a money changer in Jakarta, Indonesia, April 9, 2025. Picture taken through glass. REUTERS/Willy Kurniawan/File Photo
A teller counts US dollar bank notes at a money changer in Jakarta, Indonesia, April 9, 2025. Picture taken through glass. REUTERS/Willy Kurniawan/File Photo
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Dollar Drifts as Traders Grapple with Tariff Uncertainty, Volatility

A teller counts US dollar bank notes at a money changer in Jakarta, Indonesia, April 9, 2025. Picture taken through glass. REUTERS/Willy Kurniawan/File Photo
A teller counts US dollar bank notes at a money changer in Jakarta, Indonesia, April 9, 2025. Picture taken through glass. REUTERS/Willy Kurniawan/File Photo

The dollar wobbled on Tuesday, languishing near a three-year low against the euro and a six-month trough against the yen it hit last week, as investors struggled to make sense of the back-and-forth changes on US tariffs.

Still, currency markets were a lot calmer in Asian hours after last week's turmoil that badly bruised the dollar despite a surge in Treasury yields, highlighting shaky investor confidence in the greenback and US assets.

The dollar was slightly weaker at 142.99 yen, staying close to the six-month low of 142.05 it touched on Friday. The euro last fetched $1.136, just below the three-year high of $1.1474 hit last week.

After slumping to a 10-year low against the Swiss franc last week, the dollar was 0.2% higher on Tuesday. Still, the dollar is down nearly 8% against the Swiss franc this month, set for its biggest monthly drop since December 2008, Reuters reported.

Market focus has been on the ever-shifting tariff headlines with the US removing smartphones and other electronics from its duties on China over the weekend providing some relief, although comments from President Donald Trump suggested the reprieve is likely to be for a short time.

Trump's imposition and then abrupt postponement of most tariffs on goods imported to the US has sowed confusion, adding to the uncertainty for investors and policymakers around the world.

Kieran Williams, head of Asia FX at InTouch Capital Markets, said the policy uncertainty and erosion in investor confidence are fuelling a slow but steady rotation out of dollar assets.

"The recent backpedaling on US tariffs has eased some of the acute market anxiety, softening the dollar’s safe-haven appeal in the near term."

The yield on the benchmark US 10-year Treasury note eased 1.5 basis points to 4.348% after dropping nearly 13 basis points in the previous session.

The yields had risen about 50 bps last week in the biggest weekly gain in over two decades as analysts and investors questioned US bonds' status as the world’s safest assets.

"Last week was all about deleveraging, liquidation, and asset re-allocation out of US assets. This week's tone is calmer in what is a holiday shortened week," said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities.

"Helping to set the tone were dovish comments from Fed officials suggesting they are looking beyond inflation."

Fed Governor Christopher Waller said on Monday the Trump administration's tariff policies are a major shock to the US economy that could lead the Federal Reserve to cut interest rates to head off a recession even if inflation remains high.

Traders are pricing in 86 bps of cuts from the Fed for the rest of the year, LSEG data showed.

The dollar index, which measures the US currency against six other units, was at 99.641, not far from the three-year low it touched last week. The index is down over 4% this month, set for its biggest monthly drop since November 2022.

Sterling last bought $1.3215. The Australian dollar rose 0.66% to $0.6369, while the New Zealand dollar surged to its highest in four and half months and was last 0.88% higher at $0.5926.