IMF: Global Economy Will Suffer Heavy Blow Due To COVID-19
The IMF’s global growth projections for 2020 were released last April and get ready, because they are nothing but grim.
Whereas on January the Washington-based organization announced that world GDP would grow by 3.3 percent in 2020, the latest report predicts that the global economy will contract by -3.0 percent.
The Great Lockdown – as termed by the IMF’s Chief Economist Gita Gopinath – is “the worst recession since the Great Depression, and far worse than the Global Financial Crisis.”
The Impact Around the Globe
Advanced economies will suffer a contraction in growth of -6.1 percent this year, with the USA’s economy falling back by -5.9 percent. Other heavy-hit countries will be Italy and Spain, with their growth projections being -9.1 and -8.0 percent, respectively.
Developing economies will have an overall negative growth rate of -1.0 percent in 2020. According to the IMF, China will see a modest growth rate of 1.2 percent this year but will bounce back in 2021 with a staggering growth of 9.2 percent. India – the other Asian giant – will grow 1.9 percent this year and 7.4 the next, another impressive figure.
In general, both developed and developing economies will recover from the pandemic in 2021 by exhibiting positive growth rates.
However, the IMF’s growth predictions for 2021 work on a baseline scenario in which the pandemic fades in the second half of 2020. If this scenario does not occur, then the world could be plunged into an even deeper recession.
According to Gopinath, “if the pandemic continues into 2021, it [global GDP] may fall next year by an additional 8.0 percent compared to our baseline scenario.”
Industries that have taken a significant hit include tourism, hospitality, travel and entertainment. This comes as drastic news to countries reliant on those sectors for growth.
As a result of COVID-19 putting pressure on countries’ health systems, many are now facing a health crisis. Additionally, the halt in capital flows has put financial markets on the edge of a crisis.
The IMF recommends that countries “continue to spend generously on their health systems, perform widespread testing, and refrain from trade restrictions on medical supplies.”
Given the extreme uncertainty of the future, growth predictions could change. The IMF has stated that “The economic fallout depends on factors that interact in ways that are hard to predict”, such as the spread of the pandemic, the containment efforts of governments, and the people’s goodwill to upkeep social distancing.
Nearly as important is that governments begin preparations for the recovery. The IMF advises that “policies should shift swiftly to supporting demand, incentivizing firm hiring, and repairing balance sheets in the private and public sector”.
With no end in sight to the pandemic, it is a good idea that people and governments hope for the best but prepare for the worst.