The price of crude oil is expected to be 41 percent lower in 2020 than in 2019. The prices of metals, food, and raw materials are also expected to decline, but by significantly less than the price of oil, IMF said yesterday.
The Fund said the COVID-19 pandemic has caused a sharp decline in global trade, lower commodity prices, and tighter external financing conditions. At a global level, the latest IMF staff forecasts for 2020 imply a modest narrowing in current account surpluses and deficits by some 0.3 percent of world GDP, although subject to high uncertainty.
In its external sector report “Global imbalances and the COVID-19 crisis” released yesterday, IMF noted the global oil demand is expected to be about 8 percent lower in 2020 than in 2019. The overall estimated direct impact on oil trade balances ranges widely across economies—from –7 percent to 3 percent of GDP—reflecting differences in dependence on oil exports and imports. Estimated trade balance losses are concentrated among economies with significant net oil exports, where they are expected to exceed 3 percent of GDP. Positive effects on trade balances are spread more evenly across net oil importers, although they are expected to exceed 2 percent of GDP for Thailand and Turkey.
On the impact of remittances balances, the IMF noted remittances are highly vulnerable to the COVID-19 crisis because migrant workers are typically more exposed to the risk of unemployment and wage losses during recessions than are native workers. Migrant workers also work disproportionately in such sectors as food and hospitality, retail and wholesale, and tourism and transportation, which have taken a hit from the crisis.
The decline in remittance inflows in percent of GDP is expected to be concentrated among a number of emerging market and developing economies. Citing World Bank data, IMF said World Bank 2020 forecasts an average 20 percent fall in remittance flows in 2020, based on an empirical model that links remittance inflows to migrants’ incomes proxied by the nominal per capita incomes of the migrants’ economies of destination.
For economies where remittance inflows represented more than 5 percent of GDP, such as Egypt, Guatemala, Pakistan, the Philippines, and Sri Lanka, the decline would imply significant hardship for many households and small businesses that rely on remittances, just as their domestic economies are hit by the synchronized nature of the COVID-19 crisis. While uncertainty is high, depending on the pace of economic recovery and risks of a second wave, effects on current account balances may persist, with remittances expected to rebound only partially (by 5 percent) in 2021.
Remittances declined sharply in April 2020, before partially rebounding in May. The direct annual impact on current account balances for some economies could exceed 1 percent of GDP.
International tourism has been among the hardest hit sectors during the COVID-19 crisis, reflecting travel restrictions, although discussions on measures for lifting restrictions are underway. During the first four months of 2020 international tourism arrivals were about 50 percent lower than over the same period in 2019, with deeper declines for related indicators, such as international flight arrivals and hotel reservations.
The projected direct impact on tourism trade balances in 2020 will depend critically on the pace of tourism recovery, which is highly uncertain.
