IMF says global economy recovering more slowly than expected

The world's economy is recovering more slowly than expected from the Covid-19 pandemic which is also likely to leave enduring scars, the world's watchdog for financial stability said.

According to the International Monetary Fund's chief economist, Gita Gopinath, the depth of the crisis requires the reallocation of labour, will likely lead to a wave of bankruptcies and insolvencies, and result in changing patterns of consumer behaviour.

In a 4 June video recorded for the seventh annual Asian Monetary Forum, Gopinath said: "One has to be quite concerned about the path of recovery [...] Many of these variables point to significant scarring effects."

Asian economies had done relatively better and their integration with China's, where containment had been very effective, was a "mild positive", she said in the video, which was published on Friday.

Yet even the open economies in the region were particularly at risk from the recession in global trade, while external financing needs and fiscal shortcomings meant emerging markets remained vulnerable.

US-China trade tensions and around Hong Kong were also continuing to dampen sentiment around the world.

"All of that has very big implications for global supply chains, the location of production going forward, the risks to globalization and the rise of protectionism," the economist added.

"You’ve had very rapid cuts in monetary policy rates, very large amounts of liquidity infusion, and this has absolutely helped with global liquidity.

"The question of course is how long will this continue, and can this hold up."

The IMF was due next due to publish updated global economic forecasts on 24 June.