In piece that appeared on the International Monetary Fund’s website yesterday, the IMF indicated their upcoming outlook report will state that the global economy is suffering its worst recession since the Great Depression and how low income nations in Africa, Latin America and Asia at particularly high risk.
The Effects of the Virus to the Global Economy and the Response
Three months ago, the IMF expected positive per capita income growth in over 160 of their 189 member countries for the year ended 2020. Today that forecast has changed to over 170 countries experiencing negative per capita income for the year.
The IMF explains retail, hospitality, transport, and tourism will likely be hit the hardest. And how the majority of workers in most countries are either self-employed or employed by small and medium-sized enterprises; these workers are especially exposed.
In the last two months, the IMF portflio outflows from emerging markets were about $100 billion —3x larger than for the same period of the global financial crisis. They estimate the gross external financing needs for emerging market and developing countries to be in the trillions of dollars.
Fiscal and Monetary Support from the G20
The IMF Fiscal Monitor next week will show that countries around the world have taken fiscal actions amounting to just under $8 trillion. And in addition, there has been massive monetary measures from the G20 and others. As we have covered on the Dive, the Fed is prepared to create over $6 trillion in liquidity and the Bank of Canada is introducing their first Quantitative Easing program called LSAP.
The IMF Has Four Main Priorities
In the briefing, the IMF outlines four main priorities to contain the economic downturn:
- Continue with essential containment measures and support for health systems.
- Shield affected people and firms with large, timely, targeted fiscal and financial sector measures.
- Reduce stress to the financial system and avoid contagion.
- Even as we move through this containment phase, we must plan for recovery.
How the IMF Is Postioned
The IMF describes the current predicament as an “All Hands on Deck” scenario telling us:
- They currently have $1 trillion in lending capacity and are placing it at the service of their membership countries.
- Working with the World Bank for a standstill of debt service to official bilateral creditors for the world’s poorest countries.
- Reviewing their tool kit to see how to better use precautionary credit lines to encourage additional liquidity support, establish a short-term liquidity line, and help meet countries’ financing needs via other options—including the use of SDRs (Hi Jim Rickards!).
- Revamping the Catastrophe Containment and Relief Trust to provide immediate debt relief to low-income countries affected by the crisis, thereby creating space for spending on urgent health needs rather than debt repayment. They are working with donors to increase the trust to $1.4 billion to extend the duration of the debt relief.
Unrelated Note… Stock Market Most Overvalued Since…. Well Ever!
We have the IMF telling us to brace for the worst economic event since the Great Depression. But don’t tell that to the stock market. On a forward earnings adjusted basis, the market is the most overvalued it has ever been using P/E ratios as a benchmark.
Information for this briefing was found via the International Monetary Fund and Yahoo Finance. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
SmallCapSteve started blogging in the Winter of 2009. During that time, he was able to spot many take over candidates and pick a variety of stocks that generated returns in excess of 200%. Today he consults with microcap companies helping them with capital markets strategy and focuses on industries including cannabis, tech, and junior mining.