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A prolonged COVID-19 pandemic could lead to a sharp correction in the stock market, IMF warns

A prolonged COVID-19 pandemic could lead to a sharp correction in the stock market, IMF warns

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  • Should the COVID-19 pandemic continue for longer than expected, the economic consequences will likely lead to a sharp correction in global stocks, the IMF warned on Tuesday.
  • Extraordinary policy measures from governments around the world helped stem the decline in stocks since the initial February decline, but underlying economic conditions remain weak and the future outlook is highly uncertain, the IMF said. 
  • Investor worry over a potential prolonged COVID-19 pandemic could have been heightened on Tuesday after Johnson & Johnson paused its phase III vaccine trial due to an unexpected illness.
  • As long as investor optimism over easy fiscal and monetary policy continues, stocks can stay elevated for some time, but a significantly delayed economic recovery due to the persistence of COVID-19 could put a serious dent in that optimism, according to the IMF.
  • Visit Business Insider’s homepage for more stories.

The COVID-19 pandemic and its associated economic decline led to a sizable stock market correction that was stabilized thanks to extraordinary fiscal and monetary policy measures from governments around the world.

But there’s a real financial disconnect between the stock market and the economy, and while the disconnect could narrow if a swift and sustainable economic recovery materializes, the opposite could happen if the economic recovery is delayed due to it taking longer to get COVID-19 under control, the IMF warned on Tuesday.

“As long as investors believe that markets will continue to benefit from policy support, asset valuations may stay elevated for some time. Nonetheless, and especially if the economic recovery is delayed, there is a risk of a sharp adjustment in asset prices or periodic bouts of volatility,” the IMF said. 

Easy monetary policies like low interest rates and the buying of distressed assets, combined with fiscal stimulus, helped maintain the flow

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IMF upgrades economic forecast but warns of long-term coronavirus damage

IMF upgrades economic forecast but warns of long-term coronavirus damage

The global economy may take a smaller hit from the coronavirus recession in 2020 than was once expected but faces significant long-term challenges that will likely widen inequality, the International Monetary Fund (IMF) said Tuesday.

In a set of new projections, the IMF slightly upgraded its outlook on the 2020 economic decline while warning that a lack of further fiscal and monetary support could cause deeper damage to the global economy.

The IMF now expects global growth in 2020 to fall to -4.4 percent, 0.5 percentage points better than its June projection of -4.9 percent. The international lender expects growth to rebound to 5.2 percent in 2021, down 0.2 percentage points from a June a projection of 5.4 percent.

“As a result of eased lockdowns and the rapid deployment of policy support at an unprecedented scale by central banks and governments around the world, the global economy is coming back from the depths of its collapse in the first half of this year,” wrote IMF chief economist Gita Gopinath in a Tuesday article

“This crisis is however far from over,” she continued. “The ascent out of this calamity is likely to be long, uneven, and highly uncertain.”

The global economy has gradually rebounded from the onset of the coronavirus pandemic earlier this year, which caused the steepest economic decline since the Great Depression.

Employment and global economic activity has begun to recover as countries adapt to life amid COVID-19, which has claimed more than 1 million lives globally and more than 215,000 in the U.S.

Gopinath wrote that “signs of a stronger recovery” in the third quarter warranted the IMF’s slight upgrade to its forecast. But she warned that the total economic blow of the pandemic would linger for years and restrain the recovery for long after 2020.

“This

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IMF Says Global Economic Contraction To Be Less Severe Than Feared Earlier

IMF Says Global Economic Contraction To Be Less Severe Than Feared Earlier

(RTTNews) – Global economy is set to contract less severely than feared initially, due to better-than-expected outcomes in the main economies in the second quarter despite the lockdowns to battle the coronavirus pandemic, but the outlook remains clouded with uncertainty, especially for the emerging markets, the International Monetary Fund said Tuesday.

In its latest World Economic Outlook, the lender forecast 4.4 percent contraction for the world economy this year, which was less severe than the 5.2 percent decline seen in June.

“This upgrade owes to somewhat less dire outcomes in the second quarter, as well as signs of a stronger recovery in the third quarter, offset partly by downgrades in some emerging and developing economies,” IMF Chief Economist Gita Gopinath said.

The global economy is expected to rebound with 5.2 percent growth next year, which was less than the 5.4 percent expansion seen earlier.

Economic output is forecast to be below 2019 levels even next year in both advanced economies and emerging markets. However in China, output is expected to exceed its last year’s level.

Advanced economies are expected to shrink 5.8 percent this year, which is much less than the June prediction of 8.1 percent contraction. They are forecast to grow 3.9 percent next year.

Emerging market and developing countries, excluding China, are expected to have a contraction of 5.7 percent versus 5 percent seen in June. They are expected to grow 5 percent next year.

China is expected to register growth of 1.9 percent this year, which is better than the 1 percent expansion forecast in June. Next year, growth is expected to zoom to 8.2 percent.

India is set to witness the worst contraction this year, shrinking 10.3 percent due to a collapse in consumption and investment. The forecast was sharply revised from a 4.5 percent decline

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IMF Projects Less Severe Global Economic Decline for 2020, Slower Growth for 2021 | Best Countries

IMF Projects Less Severe Global Economic Decline for 2020, Slower Growth for 2021 | Best Countries

The International Monetary Fund announced on Tuesday new economic projections that mix both slightly better news for the short term and not-so-good news for the long term, as the coronavirus pandemic continues to hinder global growth.

The organization’s latest World Economic Outlook projects a global decline of 4.4% in 2020 – painting a rosier picture compared to its last update in June, when a 4.9% contraction was projected. The improved forecast reflects both better-than-expected second quarters – mostly for advanced economies – and indicators of strong recovery in the third quarter, according to the report.

A return to growth among advanced economies and China helped drive the revisions, the report notes. Chinese officials said on Tuesday that the country’s growth in exports accelerated in September, buoyed by a global demand for masks and medical supplies.

But the IMF also again downgraded its global outlook for 2021, projecting growth of just 5.2%. The organization in June projected growth of 5.4%, which represented a decline of 0.4% from its previous update in April. The continued downgrades represent the expectation that social distancing will continue into next year, according to the report. The current projections would leave gross domestic product in 2021 about 6.7 percentage points lower than the IMF’s pre-pandemic projections from January, and the level of global GDP next year is now expected to be a “modest” 0.6% above that of 2019.

The IMF also cautions that because of the nature of the pandemic, the outlook of the global economy is hard to put a finger on. The possibility of worse outcomes than expected “remains sizable.”

“The uncertainty surrounding the baseline projection is unusually large,” the report reads. “The forecast rests on public health and economic factors that are inherently difficult to predict.” That uncertainty also comes as the

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Financial system stable ‘for now,’ but vulnerabilities rising: IMF

Financial system stable ‘for now,’ but vulnerabilities rising: IMF

By Pete Schroeder



a cake made to look like a clock: FILE PHOTO: The IMF logo is seen outside the headquarters building in Washington


© Reuters/YURI GRIPAS
FILE PHOTO: The IMF logo is seen outside the headquarters building in Washington

WASHINGTON (Reuters) – Policymakers’ unprecedented response to the global health crisis has contained risks to the financial system, but a prolonged recession or policy missteps could ignite growing vulnerabilities worldwide, the International Monetary Fund warned on Tuesday.

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The world’s largest multilateral lender said that some banking systems could experience capital shortfalls should the economic downturn in those regions continue, and growing debt burdens in both the private and public sectors could pose future challenges to financial markets.

Given ongoing uncertainty over how quickly the COVID-19 pandemic can be brought under control, the IMF warned that policymakers need to be prepared to continue to provide broad support, and gradually withdraw it only once the pandemic is fully under control.

“As economies reopen, accommodative policies will be essential to ensure that the recovery takes hold and becomes sustainable,” the group wrote in its Global Financial Stability Report ahead of its virtual summit with the World Bank in place of its usual fall in-person gathering.

Video: More corporate job cuts are likely without new stimulus measures (CNBC)

More corporate job cuts are likely without new stimulus measures

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“Many countries have entered the crisis with elevated preexisting vulnerabilities in some sectors – asset management, nonfinancial firms, and sovereigns – and vulnerabilities are rising,” it added.

While the overall financial system is well-capitalized, for example, there is a “weak tail” of banks, particularly in emerging markets, that could struggle. The growing role of nonbanks in the financial system poses another risk, as these companies do not face the same strict capital and liquidity requirements as banks, the IMF said.

For example, it warned that asset managers could be forced

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