The global economy is expected to shrink by 3.0% during 2020 in a stunning coronavirus-driven collapse of activity that will mark the steepest downturn since the Great Depression of the 1930s, the International Monetary Fund said on Tuesday.
The IMF, in its 2020 World Economic Outlook, predicted a partial rebound in 2021, with the world economy growing at a 5.8% rate, but said its forecasts were marked by “extreme uncertainty” and that outcomes could be far worse, depending on the course of the pandemic.
“This recovery in 2021 is only partial as the level of economic activity is projected to remain below the level we had projected for 2021, before the virus hit,” IMF chief economist Gita Gopinath said in a statement.
Under the Fund’s best-case scenario, the world is likely to lose a cumulative $9 trillion in output over two years - greater than the combined GDP of Germany and Japan, she added.
The IMF’s forecasts assume that outbreaks of the novel coronavirus will peak in most countries during the second quarter and fade in the second half of the year, with business closures and other containment measures gradually unwound.
A longer pandemic that lasts through the third quarter could cause a further 3% contraction in 2020 and a slower recovery in 2021, due to the “scarring” effects of bankruptcies and prolonged unemployment. A second outbreak in 2021 that forces more shutdowns could cause a reduction of 5 to 8 percentage points in the global gross domestic product baseline forecast for next year, keeping the world in recession for a second straight year.
“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,” the IMF said in its report. “The Great Lockdown, as one might call it, is projected to shrink global growth dramatically.”
The new forecasts provide a somber backdrop to the IMF and World Bank spring meetings, which are being held by videoconference this week to avoid contributing to the spread of the virus. The meetings normally draw 10,000 people to a crowded two-block area of downtown Washington.
IMF Managing Director Kristalina Georgieva said last week that some $8 trillion in fiscal stimulus being poured in by governments to stave off collapse was not likely to be enough.
The IMF’s twice-yearly World Economic Outlook was prepared for this week’s spring meetings of the 189-nation IMF and its sister lending organization, the World Bank. Those meetings, along with a gathering of finance ministers and central bankers of the world’s 20 biggest economies, are being held virtually for the first time in light of the coronavirus outbreak.
In its latest outlook, the IMF expects economic contractions this year of 5.9% in the United States, 7.5% in the 19 European countries that share the euro currency, 5.2% in Japan and 6.5% in the United Kingdom. China, where the pandemic originated, is expected to eke out 1.2% growth this year. The world’s second-biggest economy, which had gone into lockdown, has begun to open up well before other countries.
Worldwide trade will plummet 11% this year, the IMF predicts, and then grow 8.4% in 2021.
Georgieva, warned that the world was facing “the worst economic fallout since the Great Depression.’’ She said that emerging markets and low-income nations across Africa, Latin America and much of Asia were at especially high risk. And on Monday, the IMF approved $500 million to cancel six months of debt payments for 25 impoverished countries so they can help confront the pandemic.
Just three months ago, the IMF had forecast that more than 160 countries would register income growth on a per-capita basis. Now, it expects negative per-capita income growth this year in 170 countries.
The IMF cautioned Tuesday that its latest forecast is shrouded by unknowns. They include the path that the virus will take; the effectiveness of policies meant to contain the outbreak and minimize the economic damage; and uncertainty over whether, even many months from now, people will continue to isolate themselves and depress spending as a precaution against a potential resurgence of the virus.
On a hopeful note, the IMF noted that economic policymakers in many countries have engineered what it calls a “swift and sizable’’ response to the economic crisis. The United States, for instance, has enacted three separate rescue measures, including a $2.2 trillion aid package — the largest in history — that is meant to sustain households and businesses until the outbreak recedes and economic life begins to return to normal.
That package includes direct payments to individuals, business loans, grants to companies that agree not to lay off workers and expanded unemployment benefits. And Congress is moving toward approving a possible fourth economic aid measure.
