The spread of the coronavirus pandemic around the globe seems to be intensifying. And that means all the more real becomes the worst-case scenario in which most developing countries will collapse into a deep pit of national economic crisis.
On Friday, the IMF lowered its global growth projection for 2020, waiting for a contraction of 4.9%. This is almost 2% worse than predicted in April.
“In countries with declining incidence rates slower recovery path in the updated forecast reflects the ongoing social fragmentation in the second half of 2020. Additionally, the damage from lost productivity and impact on business activity as a result of the locks were stronger than expected.
For countries still struggling to control the rate of infection, longer lock will cause additional damage to economic activity”,
the report says the IMF.
Worse than ever
Great lock, as the IMF calls it, is pushing the global economy into a synchronized recession. And with such the world has ever faced.
“No matter how painful the global financial crisis of 2008, the major influence it has had only 11 countries with a developed economy,” said world Bank chief economist Carmen Reinhart at Bloomberg summit Global Invest this week.
According to him, this time the challenges face advanced economies, they pale beside what awaits developing countries and markets.
“These countries do not have sufficient fiscal space to maneuver. That is no means to counter the consequences of the quarantine, ‘ said Reinhart.
“The question is that the world cannot support countries and markets, whose incomes have fallen. If you earned through tourism tourism has collapsed. If you relied on exports of goods and volumes reduced. Well,
if you traded raw material, the demand has fallen along with the prices. And it’s unclear when all this will be restored”
In other words, countries with developed economies such as the US, the Eurozone and Japan, have the opportunity to take and provide virtually unlimited amounts of money to support its population.
At the same time, developing countries are forced to turn to the IMF and the world Bank.
As noted by Reinhart, international organizations have already given this year a record amount of aid and credit. And further funding is in question.
“The international community simply has no firepower like that,” said the expert.
It will be even worse
About the approach of a negative scenario, we are talking to the rating agencies. So Fitch downgraded the credit rating of Canada on Wednesday. This is the 24 country since March, which the Agency lowers the sovereign rating.
This is more than the previous record for any full year since 1994,
analysts said Fitch.
In addition, as of June 2, 30% of the developing world are under threat of downgrade to negative values. And in the same position more than 50% of the rating of the sovereign companies.
“This is a record year,” says Kelli Bissett-Tom, Director, Fitch.
The downgrade could cost some countries status of a favorable investment level. This means that fewer investors will be buying their government securities. Moreover,
will make government bonds expensive, and therefore inaccessible in the future. That can threaten such countries to default