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Broken Record


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What’s going on?

The global economy is stuck on a loop: the International Monetary Fund (IMF) – a sort of bank for countries – is anticipating a recession that’ll be at least as bad as after the 2008 financial crisis.

What does this mean?

Despite the massive programs put in place by central banks like the Federal Reserve, the Bank of England, and the European Central Bank – as well as government spending packages the world over – almost 80 countries have asked the IMF for emergency loans to help stabilize their economies.

Between that and the broader economic malaise, the IMF now predicts the global economy will shrink by 1.5% this year – not far off the 1.7% of 2009 (tweet this). And developed economies like the US, Europe, and Japan could feel it most keenly: they’ll collectively shrink more than 3% this year, according to the IMF’s forecast – even though they’re among those best prepared to weather the storm.

Why should I care?

The bigger picture: Backup’s arrived.

The IMF said it’s ready to lend its entire $1 trillion war chest to help countries get things under control – and it’s clearly optimistic about the effect of its contribution, having projected a rebound in growth for the global economy in 2021. But its forecast came with a familiar caveat: the faster the virus is stopped, the faster and stronger the recovery will be.

For markets: Tell them something they don’t know.

The forecast probably didn’t come as much of a surprise to investors: they generally have a handle on the state of the global economy by the time big institutions like the IMF refreshes its predictions, thanks to official data releases and investment bank economists’ own, much prompter updates. In this case, investors had probably already seen Morgan Stanley’s recent forecast of a 30% fall in annualized second-quarter economic growth in the US – even though the investment bank reckons the global economy will still grow this year overall.

Originally Posted on March 24, 2020 – Broken Record

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