A new report from the International Monetary Fund (IMF) projects a global economic contraction of three percent this year following the social distancing and business closure measures to stem the COVID-19 pandemic.
In a quarterly update to its World Economic Outlook, the Washington, DC-based crisis lender slashed more than six percentage points from its 2020 forecast, which in January stood at an expected growth rate of 3.3 percent, as the global economic engine screeched to a halt.
The contraction caused by this “Great Lockdown,” as IMF chief economist Gita Gopinath labels it, may be much sharper than even the global downturn following the 2008-09 financial crisis.
“It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago,” she said.
The IMF estimates that the global economy grew 2.9 percent in 2019. Assuming that the pandemic peaks in the second quarter before easing in the last half of the year, growth is projected to jump in 2021 to 5.8 percent, but growth will still fall short of the level that global output was trending toward before the virus appeared.
In the report, the IMF concedes that “risks of a worse outcome predominate,” with rampant uncertainty over how harshly and effectively governments will try to contain the virus, extreme tightening of financial market conditions, behavioral changes by workers and consumers, shattered economic confidence, hard-hit commodity prices, and massive firm closures and job losses. A “multi-layered crisis,” including a healthcare shock, domestic economic disruptions, and capital flight, is afflicting many countries.
Macroeconomist David Beckworth, a senior research fellow at the Mercatus Center, said that COVID-19 is sparking “an economic disaster on par with the Great Depression.”
“Unlike the 1930s, however, policymakers are acting more aggressively and are better equipped to respond to the emerging crisis,” he says.
Beckworth describes the IMF forecast as a “dire picture.”
“This recession will be painful for all countries, but will not be felt evenly, with European and some emerging market countries taking the biggest hit,” he says. “The long-lasting effects of this global recession are uncertain but likely to include changes in productivity growth, innovation and political alignments.”
The IMF forecasts a contraction of 6.1 percent for all advanced economies in 2020. Facing the worst impact, the Eurozone economy could shrink by 7.5 percent, led by devastated Italy contracting by 9.1 percent. The decline in the United States is pegged at 5.9 percent for the year.
Emerging markets and developing economies are slated to contract by one percent. Among those, China, the world’s second-largest economy, may already have suffered the worst of the crisis in the first quarter, and could still rebound to reach 1.2 percent growth in 2020. The IMF sees annual growth of 1.9 percent in India, while regions including Latin America, Eastern Europe, and Russia will suffer significant contractions.
The IMF outlook has world trade volume shrinking by 11 percent this year before growing rapidly in 2020.
The report credited major central banks for having already acted to provide major monetary stimulus and liquidity facilities in hopes of reducing systemic stress and better position their economies for quick recovery. Gopinath praised policymakers for rising “to this unprecedented challenge.”
Photo by Brian McGowan on Unsplash
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