It’s easy to write a disaster scenario…

Doctors love to prepare you for the worst and then give you the good news when things start to go better. In economics, the same thing happens in a bidirectional way. We sometimes see economic experts making excessively exaggerated or excessively negative forecasts, just like the ones in the IMF’s annual reports.

IMF released its “Global Economic Outlook” report just when the Capital Markets has started to show signs of improvement. And the most striking statement in this report is: “The world is facing an unprecedented crisis”.

When the IMF stated that global economy would sharply shrink by 3% in 2020, it also suggested that all countries should avoid making decisions on their own, act in coordination with each other instead. As I know their previous reports like the back of my hand, I also know that the IMF tends to present solutions that are not very to implement. And this is one of those solutions, a “Wouldn’t it be just great if it became true” kind of solution. By the way, in its report, the IMF indicates that Central Banks’ measures to overcome the financial crisis increase public confidence and help economies breathe a sigh of relief. I must say that I agree with the Monetary Fund.

“I don’t see the negative in everything…”

The IMF’s scenario says that the negative effects of the pandemic will be reduced in the second half of the year, helping global economic growth improve by 5.8% in 2021. But, it also indicates that the pandemic may last longer than expected. According to the latter, in 2020:

Developed Countries are expected to see 6.1% recession while the IMF expects the U.S economy to shrink 5.9%, and Euro zone economies, Germany, France, Italy and United Kingdom will contract respectively by 7.5%, 7%, 7.2%, 9.1 % and 6.5% in 2020 according to the IMF. If you ask me, this is a “nightmare scenario”. Pretty exaggerated indeed…

Luckily, IMF doesn’t set out such an equally negative scenario for emerging markets as it expect them to shrink 1% in 2020 and to grow 6.6% in 2021. IMF has some terrible news for China as it is expected to eke out 1.2% growth this year and rebound strongly to 9.2% in 2021. But, apparently China has a though year ahead. Meanwhile, Russia’s economy is forecast to slump 5.5% in 2020.

Drawing quite a negative picture of Turkey’s economic future, IMF expects Turkey to shrink 5% this year and attain a 5% growth in 2021. But, I happen to agree with that forecast of the IMF: “CPI will rise around 12% in 2020 and 2021″

While unemployment rate is forecasted to be 17.2% for 2020 and 15.6% for 2021 by the IMF, I personally expect it turn out to be 1 point lower than anticipated.

Well, for the first time in a long time, IMF has issued deeply negative forecasts, which would probably be revised upwards in October this year. But it may not be so easy for markets to gather their strength back after such discouragement.