Bar chart of Percentage point decline in growth forecast between 2019 and 2025 showing Long-term economic scars from coronavirus

IMF urges governments to spend their way out of pandemic

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IMF urges governments to spend their way out of pandemic

Most advanced economies need not cut public spending to restore government finances after the coronavirus pandemic, the IMF said on Wednesday, in a reversal of the advice given following the last financial crisis.

The IMF expects government debt to rise significantly in proportion to national income in most advanced economies this year as countries respond to the impact of Covid-19.

In its first medium-term forecasts since the onset of the virus, the IMF warned this week that coronavirus would wreak “lasting damage” across the global economy in the form of job losses and bankruptcies.

The fund said countries heavily reliant on tourism and commodities were likely to be left in “a particularly difficult spot” as it predicted the biggest contraction in the global economy since the Great Depression of the 1930s.

Overall, it expected the global economy to contract by 4.4 per cent in 2020 and public debt to reach a record high of almost 100 per cent of the world’s gross domestic product.

However, the IMF said interest rates in most advanced economies were likely to remain at record lows, meaning governments could borrow to largely offset the weaker growth and lower tax revenues that would result from the pandemic.

The fund’s advice for governments to spend their way out of the crisis is a stark reversal of the message a decade ago at the equivalent stage in the financial crisis. Then, the IMF warned that “many countries face large retrenchment needs going forward”, leading many governments to cut their public spending.

Speaking to the Financial Times today, Vitor Gaspar, head of fiscal policy at the IMF, exemplified the IMF’s policy shift under current managing director Kristalina Georgieva and her predecessor Christine Lagarde.

“Policymakers that have a choice would be well-advised to be very gradual and to maintain fiscal support until the recovery is on a sound footing and the long-run scarring impacts from Covid-19 are perceived to be under control,” he told the FT.


Line chart of Market capitalisation (US$tn) showing China's stock market value climbs past 2015 high

The total value of China’s stock market climbed to a record high of more than $10tn, as the country’s accelerating economic recovery propelled it past the previous peak hit during an equities bubble five years ago. The benchmark CSI 300 has rallied about 17 per cent this year, compared with 9 per cent for Wall Street’s S&P 500. The renminbi has also strengthened against the dollar in recent weeks.

Some hedge funds are betting that the best days for the stock market’s coronavirus winners are in the past. Shares linked to home computing and gym equipment, grocery retail and healthcare soared when the pandemic forced countries into lockdown earlier this year. But some hedge fund managers are betting against those stocks, in the belief that the boost to company earnings will fade away faster than many investors anticipate. “We have begun shorting some of the Covid over-earners,” said the chief investment officer at one hedge fund.

Latest coronavirus news

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Zambia has warned it is ready to become the first African country to default as a result of the pandemic if investors in its $3bn worth of US dollar bonds reject a request by the southern African nation to suspend payments. Zambia, which is attempting to restructure its $12bn of external debt, has become a crucial test of global efforts to help emerging nations find debt relief as coronavirus devastates their economies.


Zoom is bringing apps and paid-for events to its video meetings service, in a bid to consolidate its grip on the huge new audience that flocked to its platform during the pandemic. OnZoom, where anyone can promote and sell virtual events, is launching on Wednesday in the US in test form. It also unveiled a plan to turn itself into a platform for other apps — which it dubbed “Zapps”.

Booming markets drove a surge in third-quarter profits at Goldman Sachs’ trading and asset management businesses, helping the Wall Street bank to post its strongest profitability since 2010. Like other big US banks that have reported this week, Goldman was boosted by lower than expected loan loss charges after the US economy stabilised following the shutdown earlier in the year in response to the pandemic.

Amazon will soon employ a million workers

The pandemic has spurred Amazon to accelerate what was already an aggressive expansion strategy. This year it is on track to add more than 50 per cent to its global logistics footprint by securing more warehouse space, sorting centres and delivery hubs. But ahead of what is likely to be a second round of lockdowns, the company is facing two big challenges: getting the people needed to staff its operations and to lessen its reliance on third parties.

Global economy

Global carbon dioxide emissions fell 8.8 per cent in the first half of the year — equivalent to the past three years of UK greenhouse gas emissions — due to restrictions on movement and economic activity owing to the pandemic. A new study, based on analysis of real-time data including electricity consumption, flight information and industrial output and published in Nature Communications, found emissions fell by 1.6bn tonnes from January to June this year. “This is more dramatic than the financial crisis,” said Hans Joachim Schellnhuber, an author of the paper.

Low fertility rates keep Europe’s population among world’s oldest, Total fertility rate and median age, 1955-2030

Germany’s population shrank for the first time in a decade after the pandemic triggered a sharp drop in immigration this year.
In the first six months there was a 29 per cent fall in the number of immigrants arriving in Germany, while the number of people emigrating dropped 22 per cent, according to the country’s national statistics office.

As the Covid-19 crisis, and the prospect of a second wave, pushes the UK towards a sharp economic slowdown, hundreds of thousands of young people face an uncertain future. Three months into the pandemic, one-third of employees aged 18 to 24 excluding students lost their jobs or were furloughed, according to the Resolution Foundation think-tank. The under-25s were two-and-a-half times more likely than their older peers to work in sectors shut down by social-distancing requirements, another study found.

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How is your workplace dealing with the pandemic? And what do you think business and markets — and our daily lives — will look like after lockdown? Please tell us by emailing [email protected] We may publish your contribution in an upcoming newsletter. Thanks

Reader pantagruelian encephalus comments on the article Johnson gambles by splitting from his scientists about divisions in the UK government over its response to rising cases of Covid-19 in the country.

I’m a theoretical physicist. There is never in history a ‘one science’ but a constant fight and unfinished debate in search of truth. Science is not a democracy neither a popularity contest.

The essentials

During national lockdowns, most e-retailers had sufficient digital infrastructure to respond to the increase in demand but the same was not true of more “physical” industries, says Marcus Weldon, Nokia’s chief technology officer. This must change, he argues, for all industries that require remote operation, reconfiguration and automation “to increase resilience”.

Final thought

© David Hockney

Two years ago, David Hockney fell in love with a ramshackle house in Normandy. This 17th-century maison à colombages, common in Normandy but avoided as too picturesque and old-fashioned by the region’s Impressionist and modern painters, has now been Hockneyfied, writes the FT’s art critic Jackie Wullschläger. David Hockney, Ma Normandie is the result. It opens this week in Paris’s Galerie Lelong.