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KIEP: Global economy will contract 2.6% in 2020

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By Lee Kyung-min

Korea Institute for International Economic Policy (KIEP) forecast, Tuesday, the global economy will contract 2.6 percent in 2020, down 5.8 percentage points from 3.2 percent growth in an earlier forecast made in November 2019.

The revised-down figure is different by 0.4 percentage points from 3 percent contraction made by the International Monetary Fund (IMF) in April, an estimation reflecting higher projected growth of China, the state think tank said.

The IMF said China will grow 1.2 percent in 2020, whereas KIEP expects 2.2 percent growth.

"China's services sector has greatly expanded over the past few years, but it still accounts for a relatively smaller portion of the country's GDP compared to other countries. This means China remained relatively isolated from the pandemic-caused deterioration in the sector," a KIEP official said.

Also advancing the rosy outlook is the world's second-largest economy's scheduled large investment in new infrastructure including 5G telecommunication technologies and artificial technologies.

This together with expected recovery in demand for non-durable to semi-durable goods among many other daily necessities will also lead to an earlier-than-expected recovery in overall consumer confidence, the think tank said.

"China with far more tighter control of state affairs than other economies will help rapid resumption of the industrial development put on hold due to the pandemic. Once state-wide directives resume, the chemical and heavy industries can pick up sooner than previously thought," the official said.

The institute believes a v-shaped recovery could be possible in China if it is able to fully contain the virus, an optimistic goal unlikely to be quickly arrived at by other countries still reeling from the continuing spread of COVID-19.

"Advanced economies have seen their growth rates sag in the years following a major crisis that occurred every decade, a much-concerning scenario feared to repeat this time. We will have to closely monitor the developments," the official said.

Except for China, overall recovery of the global economy hinges largely on how fast the virus is brought under control, to which no one has an answer.

The institute maintains that the current economic downturn on a steeper-than-expected decline brought on by the public health crisis is felt more painfully than that sparked by the previous U.S.-China trade dispute, given the uncertainty over virus containment is far greater than the feud between the world's two largest economies.

"Without vaccines or a cure, infection and death could flare up at any moment, which makes the current challenge particularly difficult to weather," official said.

Lee Kyung-min

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