2020 OCT WORLD ECONOMIC OUTLOOK INTERNATIONAL MONETARY FUND A Long and Difficult Ascent2020 OCT WORLD ECONOMIC OUTLOOK INTERNATIONAL MONETARY FUND A Long and Difficult Ascent2020 International Monetary Fund Cover and Design IMF CSF Creative Solutions Division Composition AGS, An RR Donnelley Company Cataloging-in-Publication Data Joint Bank-Fund Library Names International Monetary Fund. Title World economic outlook International Monetary Fund Other titles WEO | Occasional paper International Monetary Fund | World economic and financial surveys. Description Washington, DC International Monetary Fund, 1980- | Semiannual | Some issues also have thematic titles. | Began with issue for May 1980. | 1981-1984 Occasional paper / International Monetary Fund, 0251-6365 | 1986- World economic and financial surveys, 0256-6877. Identifiers ISSN 0256-6877 print | ISSN 1564-5215 online Subjects LCSH Economic developmentPeriodicals. | International economic relations Periodicals. | Debts, ExternalPeriodicals. | Balance of paymentsPeriodicals. | International financePeriodicals. | Economic forecastingPeriodicals. Classification LCC HC10.W79 HC10.80 ISBN 978-1-51355-605-5 English Paper 978-1-51355-814-1 English ePub 978-1-51355-815-8 English PDF The World Economic Outlook WEO is a survey by the IMF staff published twice a year, in the spring and fall. The WEO is prepared by the IMF staff and has benefited from comments and suggestions by cutive Directors following their discussion of the report on September 30, 2020. The views expressed in this publication are those of the IMF staff and do not necessarily represent the views of the IMF’s cutive Directors or their national authorities. Recommended citation International Monetary Fund. 2020. World Economic Outlook A Long and Difficult Ascent. Washington, DC, October. Publication orders may be placed online, by fax, or through the mail International Monetary Fund, Publication Services P .O. Box 92780, Washington, DC 20090, USA Tel. 202 623-7430 Fax 202 623-7201 E-mail publicationsimf.org www.imfbookstore.org www.elibrary.imf.org International Monetary Fund | October 2020 iii CONTENTS Assumptions and Conventions viii Further Ination x Data xi Preface xii Foreword xiii cutive Summary xv Chapter 1. Global Prospects and Policies 1 Global Economy Climbing Out of the Depths, Prone to Setbacks 1 Considerations for the Forecast 6 Partial Recovery from Deep Recession Expected in 2021 8 Medium-Term Growth Reflects Damage to Supply Potential 12 Inflation Is Expected to Remain Low 15 Subdued Trade Flows, Smaller Deficits and Surpluses 16 Significant Risks of More Severe Growth Outcomes 18 Near-Term Policy Priorities Ensure Adequate Resources for Health Care, Limit Economic Damage 21 Enhancing Multilateral Cooperation 22 Policies to Address Medium- and Long-Term Challenges 24 Scenario Box 1. Alternative Scenarios 28 Box 1.1. Revised World Economic Outlook Purchasing-Power-Parity Weights 31 Box 1.2. Inclusiveness in Emerging Market and Developing Economies and the Impact of COVID-19 34 Box 1.3. Rising Small and Medium Enterprise Bankruptcy and Insolvency Risks Assessment and Policy Options 38 Box 1.4. Social Unrest during COVID-19 40 Special Feature Commodity Market Developments and Forecasts 43 Box 1.SF.1. What Happened with Global Carbon Emissions in 2019 54 References 61 Chapter 2. The Great Lockdown Dissecting the Economic Effects 65 Introduction 65 Cross-Country Evidence on Lockdowns and Economic Activity 67 Assessing the Impact of Lockdowns Using High-Frequency Data 68 The Unequal Effects of Lockdowns across Gender and Age Groups 70 Lockdowns and COVID-19 Infections 73 Individual Lockdown Measures and Nonlinear Effects 74 Conclusions 75 Box 2.1. An Overview of the Literature on the Economic Impact of Lockdowns 77 Box 2.2. The Role of Ination Technology Adoption during the COVID-19 Pandemic Evidence from the United States 79 References 81WORLD ECONOMIC OUTLOOK A LONG AND DIFFICULT ASCENT iv International Monetary Fund | October 2020 Chapter 3. Mitigating Climate ChangeGrowth- and Distribution-Friendly Strategies 85 Introduction 85 The Mitigation Toolkit How Have Policies Worked So Far 89 How to Reach Net Zero Emissions by 2050 92 How to Build Inclusion 103 Conclusion 106 Box 3.1. Glossary 107 Box 3.2. Zooming In on the Electricity Sector The First Step toward Decarbonization 108 References 110 Statistical Appendix 115 Assumptions 115 What’s New 116 Data and Conventions 116 Country Notes 117 Classification of Countries 118 General Features and Composition of Groups in the World Economic Outlook Classification 119 Table A. Classification, by World Economic Outlook Groups and Their Shares in Aggregate GDP , Exports of Goods and Services, and Population, 2019 120 Table B. Advanced Economies, by Subgroup 121 Table C. European Union 121 Table D. Emerging Market and Developing Economies, by Region and Main Source of Export Earnings 122 Table E. Emerging Market and Developing Economies, by Region, Net External Position, and Status as Heavily Indebted Poor Countries and Low-Income Developing Countries 123 Table F. Economies with Exceptional Reporting Periods 125 Table G. Key Data Documentation 126 Box A1. Economic Policy Assumptions Underlying the Projections for Selected Economies 136 List of Tables 140 Output Tables A1–A4 141 Inflation Tables A5–A7 148 Financial Policies Table A8 153 Foreign Trade Table A9 154 Current Account Transactions Tables A10–A12 156 Balance of Payments and External Financing Table A13 163 Flow of Funds Table A14–A15 167 World Economic Outlook, Selected Topics 171 IMF cutive Board Discussion of the Outlook, October 2020 181 Tables Table 1.1. Overview of the World Economic Outlook Projections 9 Table 1.2. Overview of the World Economic Outlook Projections at Market Prices 11 Table 1.1.1. Changes in World GDP Shares from Purchasing-Power-Parity Revisions 31 Table 1.1.2. Revisions to Real GDP Growth of World Economic Outlook Aggregates 33 Table 1.4.1. Cross-Sectional Regressions 41 Table 1.4.2. Dynamic Regressions Epidemics 42 Table 1.SF.1. Coal Consumption, by Sector 48 Table 1.SF.2. Energy Mix, by Income Groups, 2017 50 Table 1.SF.3. Selected Recent Fast Coal Phaseouts 51contents International Monetary Fund | October 2020 v Annex Table 1.1.1. European Economies Real GDP , Consumer Prices, Current Account Balance, and Unemployment 55 Annex Table 1.1.2. Asian and Pacific Economies Real GDP , Consumer Prices, Current Account Balance, and Unemployment 56 Annex Table 1.1.3. Western Hemisphere Economies Real GDP , Consumer Prices, Current Account Balance, and Unemployment 57 Annex Table 1.1.4. Middle Eastern and Central Asian Economies Real GDP , Consumer Prices, Current Account Balance, and Unemployment 58 Annex Table 1.1.5. Sub-Saharan African Economies Real GDP , Consumer Prices, Current Account Balance, and Unemployment 59 Annex Table 1.1.6. Summary of World Real per Capita Output 60 Online TablesStatistical Appendix Table B1. Advanced Economies Unemployment, Employment, and Real GDP per Capita Table B2. Emerging Market and Developing Economies Real GDP Table B3. Advanced Economies Hourly Earnings, Productivity, and Unit Labor Costs in Manufacturing Table B4. Emerging Market and Developing Economies Consumer Prices Table B5. Summary of Fiscal and Financial Indicators Table B6. Advanced Economies General and Central Government Net Lending/Borrowing and General Government Net Lending/Borrowing Excluding Social Security Schemes Table B7. Advanced Economies General Government Structural Balances Table B8. Emerging Market and Developing Economies General Government Net Lending/Borrowing and Overall Fiscal Balance Table B9. Emerging Market and Developing Economies General Government Net Lending/Borrowing Table B10. Selected Advanced Economies Exchange Rates Table B11. Emerging Market and Developing Economies Broad Money Aggregates Table B12. Advanced Economies Export Volumes, Import Volumes, and Terms of Trade in Goods and Services Table B13. Emerging Market and Developing Economies by Region Total Trade in Goods Table B14. Emerging Market and Developing Economies by Source of Export Earnings Total Trade in Goods Table B15. Summary of Current Account Transactions Table B16. Emerging Market and Developing Economies Summary of External Debt and Debt Service Table B17. Emerging Market and Developing Economies by Region External Debt by Maturity Table B18. Emerging Market and Developing Economies by Analytical Criteria External Debt by Maturity Table B19. Emerging Market and Developing Economies Ratio of External Debt to GDP Table B20. Emerging Market and Developing Economies Debt-Service Ratios Table B21. Emerging Market and Developing Economies, Medium-Term Baseline Scenario Selected Economic Indicators Figures Figure 1.1. Industrial Production and Retail Sales 2 Figure 1.2. Global Activity Indicators 2 Figure 1.3. Government Lockdowns and Economic Responses to COVID-19 Global Index 3 Figure 1.4. Commodity Prices 3 Figure 1.5. Global Inflation 3 Figure 1.6. Sectoral Growth and the Business Cycle 4WORLD ECONOMIC OUTLOOK A LONG AND DIFFICULT ASCENT vi International Monetary Fund | October 2020 Figure 1.7. Purchasing Managers’ Indices, 2020 4 Figure 1.8. Advanced Economies Monetary and Financial Market Conditions 5 Figure 1.9. Emerging Market Economies Monetary and Financial Conditions 6 Figure 1.10. Emerging Market Economies Capital Flows 7 Figure 1.11. Real Effective Exchange Rate Changes, April–September 2020 7 Figure 1.12. GDP Losses 2019–21 versus 2019–25 12 Figure 1.13. Per Capita GDP Cumulative Growth, 2019–25 12 Figure 1.14. Ratio of Public Debt Service Costs to Government Tax Revenue 13 Figure 1.15. Change in Income Inequality since 1990 14 Figure 1.16. Contribution to Headline Inflation 16 Figure 1.17. Five-Year, Five-Year Inflation Swaps 16 Figure 1.18. Global Trade Volume Growth, Global Outward Foreign Direct Investment, and T ravel-Related T rade Services 17 Figure 1.19. Current Account and International Investment Positions 18 Figure 1.20. Fiscal Stance, 2019–21 18 Figure 1.21. Geopolitical Risk Index 20 Figure 1.22. Share of World Imports Affected by Countries’ Own Import Restrictions 20 Figure 1.23. Policy Uncertainty and Trade Tensions 21 Figure 1.24. Output Gap Projections, 2020–23 21 Scenario Figure 1. Alternative Evolutions in the Fight against the COVID-19 Virus 28 Scenario Figure 2. Downside and Upside Scenarios Global Real GDP 29 Figure 1.1.1. Purchasing-Power-Parity Revision for China 32 Figure 1.2.1. Positive Developments 35 Figure 1.2.2. Remaining Gaps 35 Figure 1.2.3. Telework Ability and Income Inequality 36 Figure 1.2.4. Beyond GDP Welfare Growth 37 Figure 1.3.1. Small and Medium Enterprises’ Liquidity and Solvency Concerns under COVID-19 in 2020 38 Figure 1.3.2. Change in Share of Small and Medium Enterprises with Negative Equity, by Policy Scenario and Region 39 Figure 1.4.1. Monthly Share of Countries Experiencing Unrest Implied by the Reported Social Unrest Index 40 Figure 1.4.2. Daily Protest Articles for the United States, April–June 2020 41 Figure 1.SF.1. Commodity Market Developments 43 Figure 1.SF.2. Oil Storage Capacity Utilization Rates 44 Figure 1.SF.3. Global Driving and Walking Mobility Indices 44 Figure 1.SF.4. Commodity Prices during the COVID-19 Pandemic 45 Figure 1.SF.5. Coal, 1850–2017 47 Figure 1.SF.6. Decomposition of Change in World Coal Intensity 47 Figure 1.SF.7. Coal Consumption, by Country 48 Figure 1.SF.8. Emission Factors 49 Figure 1.SF.9. Average Annual Carbon Dioxide Emissions 49 Figure 1.SF.10. Coal Phaseouts 50 Figure 1.SF.11. Levelized Cost of Electricity for New Investment, 2019 51 Figure 1.SF.12. Contribution to European Electricity Generation Growth 52 Figure 1.SF.13. Coal and Natural Gas Prices in 2020 52 Figure 1.SF.1.1. Contribution to World Emissions, by Country/Region 54 Figure 1.SF.1.2. Contribution to World Emissions, by Source 54 Figure 2.1. Lockdowns and Economic Activity 67contents International Monetary Fund | October 2020 vii Figure 2.2. The Impact of Lockdowns and Voluntary Social Distancing on Mobility 68 Figure 2.3. Further Insights into the Impact of Lockdowns on Mobility 70 Figure 2.4. The Impact of Lockdowns and Voluntary Social Distancing on Job Postings 71 Figure 2.5. Job Postings, by Sector, around Stay-at-Home Orders 71 Figure 2.6. Differentiating the Mobility Impact of Lockdowns by Gender and Age Group 72 Figure 2.7. The Impact of Lockdowns on COVID-19 Infections 73 Figure 2.8. Individual Lockdown Measures and Nonlinear Effects 74 Figure 2.2.1. The Dampening Effects of Ination Technology Adoption on US Unemployment 79 Figure 3.1. Risks from Unmitigated Climate Change 86 Figure 3.2. Environmental Policies and Share of Clean Innovation and Electricity Generation 90 Figure 3.3. Effect of Policy Tightening on Electricity Innovation, Electricity Generation, and Employment, by Type of Technology 91 Figure 3.4. G-Cubed Model Simulations, Baseline 95 Figure 3.5. Global Temperature and CO 2 Emissions 95 Figure 3.6. G-Cubed Model Simulations of Comprehensive Policy Package, Global Results 97 Figure 3.7. Medium- to Long-Term Output Gains from Climate Change Mitigation 98 Figure 3.8. Job Multipliers 98 Figure 3.9. G-Cubed Model Simulations of Comprehensive Policy Package, Cross-Country Differences 100 Figure 3.10. G-Cubed Model Simulations, Partial Participation in Mitigation 101 Figure 3.11. Role of Green Technological Progress 102 Figure 3.12. Potential for Emission Reductions in the Electricity Sector 103 Figure 3.13. Distribution of Consumption, Employment, and Impact of Carbon Taxes 104 Figure 3.14. Public Opinion in Support of Environmental Protection 104 Figure 3.15. Distributional Impact of Feebates 106 Figure 3.2.1. Decarbonization of the Electricity Sector 108WORLD ECONOMIC OUTLOOK TK viii International Monetary Fund | October 2020 WORLD ECONOMIC OUTLOOK TENSIONS FROM THE TWO-SPEED RECOVERY ASSUMPTIONS AND CONVENTIONS A number of assumptions have been adopted for the projections presented in the World Economic Outlook WEO. It has been assumed that real effective exchange rates remained constant at their average levels during July 24 to August 21, 2020, except for those for the currencies participating in the European exchange rate mechanism II ERM II, which are assumed to have remained constant in nominal terms relative to the euro; that established policies of national authorities will be maintained for specific assumptions about fiscal and monetary policies for selected economies, see Box A1 in the Statistical Appendix; that the average price of oil will be 41.69 a barrel in 2020 and 46.70 a barrel in 2021 and will remain unchanged in real terms over the medium term; that the six-month London interbank offered rate LIBOR on US dollar deposits will average 0.7 pe