The global economy is expected to shrink by 3.0 per cent during 2020 in a coronavirus-driven collapse of activity that will mark the steepest downturn since the Great Depression of the 1930s, the International Monetary Fund says.
The IMF, in its 2020 World Economic Outlook, predicted a partial rebound in 2021, with the world economy growing at a 5.8 per cent 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 $US9 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 per cent 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.”
IMF Managing Director Kristalina Georgieva said last week that some $US8 trillion in fiscal stimulus being poured in by governments to stave off collapse was not likely to be enough. She is expected to argue this week for more debt relief for the poorest countries.
The global economy contracted 0.7 per cent in 2009 – previously the worst downturn since the 1930s – according to IMF data.
Advanced economies now suffering the worst outbreaks of the virus will bear the brunt of the plunge in activity.
The US economy will contract 5.9 per cent in 2020, with a rebound to 4.7 per cent growth in 2021 under the Fund’s best-case scenario.
Euro zone economies will contract by 7.5 per cent in 2020, with hard-hit Italy seeing its GDP fall 9.1 per cent and contractions of 8.0 per cent in Spain, 7.0 per cent in Germany and 7.2 per cent in France, the Fund said. It predicted euro-area economies as a whole would match US growth of 4.7 per cent in 2021.
China, where the coronavirus outbreak peaked in the first quarter and business activity is resuming with the help of large fiscal and monetary stimulus, will maintain positive growth of 1.2 per cent in 2020, a reduction from 6 per cent growth in the IMF’s January forecast. China’s economy is forecast to grow 9.2 per cent in 2021, the IMF said.
India’s 2020 fiscal-year growth also is expected to stay in positive territory, but Latin American economies, which are still experiencing growing coronavirus outbreaks, will see a contraction of 5.2 per cent.