Coronavirus: IMF raises global growth forecast
The International Monetary Fund (IMF) revealed their bleak economic forecast last year, stating that more than 90 million people could be plunged into extreme poverty during the peak of the coronavirus crisis.
The news came shortly after UK Prime Minister Boris Johnson unveiled his three-tier lockdown system for England, which also saw the IMF update its forecast for the UK economy, anticipating that the UK economy would contract by 9.8% in 2020. The prediction turned out to be accurate, with GDP for 2020 contracting by 9.9% as restrictions became more severe.
However, this year has seen the IMF raise its global growth forecast as a result of the rapid deployment of coronavirus vaccines. The new forecast is that the global economy will grow by 5.5% in 2021 and 4.2% in 2022. Economic growth for the UK has been altered to 4.5%.
The IMF also acknowledged that the gap between rich and poor countries is likely to widen. Gita Gopinath, IMF chief economist, stated “with advanced economies generally expected to recover faster, progress made towards convergence over the last decade is at risk of reversing.”
WHO acknowledges economic strain of nationwide lockdowns
The World Health Organisation (WHO) came under fire last year after delivering a statement on lockdowns, which they have since claimed were “taken out of context.”
WHO officials warned government leaders to rely less on nationwide lockdowns as they cause significant harm to the economy.
Special envoy at the WHO, David Nabarro, insisted that national lockdowns should be used as a last resort and that governments should use other effective methods to tackle the coronavirus.
In an interview with BBC Radio 4, Mr Nabarro said: “When it comes to what the state does, it’s a combination of testing, contact tracing, isolating, and having the capacity to deal with outbreaks when they build up.”
However, Mr Nabarro said that the WHO does not advocate national lockdown as the primary method of containing the virus as the consequences of this is felt severely by the poor and disadvantaged people.”
More people are out of work, the hospitality and tourism sectors are nearing a standstill, and poverty levels have skyrocketed, so a more sustainable approach is needed rather than “lurching from lockdown to lockdown” said David Nabarro.
Under-25s most hit by UK unemployment
According to the latest data from the Office of National Statistics (ONS), UK unemployment levels have spiralled to their worst level in nearly three years due to COVID-19.
The latest figures show that UK unemployment jumped up 5.1% in Q4 of 2020, with three-fifths of this figure consisting of under-25s.
Last year, the ONS National Statistician for Economics, Jonathan Athow, said that a large number of redundancies stemmed from hospitality, recruitment and travel sectors – some of the worst-affected industries in the UK.
Although the number of people on payrolls increased by 83,000 in January this year, with the government imposing more stringent restrictions and measures to curb the spreading of the virus, the UK unemployment rate is expected to spike further towards the end of the year. The Bank of England predicted a 7.8% rise in UK unemployment but, with the economic outlook improving, they stated during their March policy meeting that this level would be less severe than initially predicted.
Chancellor Rishi Sunak’s furlough scheme was due to end this April; however, he announced that this would be extended to the end of December during the Spring 2021 budget. With non-essential businesses set to reopen from 12th April, the continued Government financial aid until the end of September would, therefore, help provide additional support as businesses get back on their feet.
Pound Sterling subdued against major currencies
As unemployment continues to remain a substantial issue for the UK, the British pound (GBP) has become more subdued against its key currency rivals over recent weeks. The British pound (GBP) had been supported by the UK’s coronavirus vaccination programme, though supply issues looked to threaten this progress.
The British pound to US dollar (GBP/USD) exchange rate has hovered around USD 1.37 during trading last week. The US has also been hit hard by unemployment during COVID-19, though this has improved following President Joe Biden’s coronavirus stimulus plan. Non-farm payrolls rose by 916,000 in March, with unemployment falling to 6%.
Outlook for the US economy is becoming increasingly optimistic, which is weighing on the British pound to USD dollar (GBP/USD) exchange rate. Whilst the fall in the unemployment rate is a positive step forward, the rate prior to the coronavirus pandemic was 3.5%, highlighting that the country still has a way to go on its road to economic recovery.
Whilst the British pound (GBP) looks to be underpinned by rapid vaccinations and businesses reopening next week, some currency analysts believe that Sterling could be running out of steam. Only time will tell if this is the case, as we continue to advance into Q2.