MNI POLICY: IMF Tells G20 to Keep Stimulus as Momentum Fading

The global economy is losing momentum after a stronger-than-expected third quarter and extended monetary and fiscal policy aid is required until Covid-19 vaccine breakthroughs are developed, the IMF said Thursday in a report for G20 leaders meeting this weekend.

"The most recent data for contact intensive service industries point to a slowing momentum in economies where the pandemic is resurging," said a blog post about the report from Kristalina Georgieva, IMF Managing Director. "While a medical solution to the crisis is now in sight, the economic path ahead remains difficult and prone to setbacks."

The USD12 trillion of fiscal support and monetary action have helped keep the IMF's October projection for limiting the slump this year to 4.4% followed by a 2021 gain of 5.2% on track. "For many economies--including the United States, Japan, and the Euro Area--economic activity in the third quarter turned out stronger than expected," the fund's G20 surveillance report said.

Those benefits are at risk if fiscal support is withdrawn too soon, a warning that comes as the U.S. and other countries' supports are due to expire at year-end. Instead, if governments turned to coordinated infrastructure spending, the cost of dealing with the crisis would be far lower, boosting global GDP by 2% by 2025 instead of 1.2% in an uncoordinated approach.

"Continued accommodative monetary policy will be needed in most G20 economies as employment generally remains weak and inflation expectations subdued, even signaling deflation risk in some cases," the IMF report said.

"On the upside, faster-than-expected containment of the virus or the development of better treatments would allow for a quicker return to normal activity, limit economic scarring, and boost growth," Georgieva's blog post said.