The global economy is on track to contract “sharply” by 3 percent in 2020 as a result of the COVID-19 pandemic, much worse than during the 2008-09 financial crisis, according to a World Economic Outlook (WEO) report released by the International Monetary Fund (IMF) on Tuesday.
“The world has changed dramatically in the three months since our last update of World Economic Outlook in January,” IMF Chief Economist Gita Gopinath said at a virtual press conference, noting that the latest projection is 6.3 percentage points lower than the previous estimation.
“As countries implement needed containment measures to control the pandemic, the world has been put in a great lockdown,” Gopinath said. “The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes.”
In addition, many countries face multiple challenges, including health crises, financial crises, and a collapse in commodity prices, all of which “interact in complex ways,” she said.
While noting that policy makers are responding in an “unprecedented” manner by helping households, firms and financial markets, the IMF chief economist said there is still “considerable uncertainty about what the economic landscape will look like when we emerge from this lockdown.”
Calling it the “worse recession” since the Great Depression of the 1930s, Gopinath said the cumulative global output loss across 2020 and 2021 is expected to reach about 9 trillion U.S. dollars, greater than the economies of Japan and Germany combined.
“Assuming the pandemic fades in the second half of 2020 and that policy actions taken around the world are effective in preventing widespread firm bankruptcies, extended job losses and system-wide financial strength, we project global growth in 2021 to rebound to 5.8 percent,” she said, stressing that the recovery is “only partial.”
The latest WEO showed that advanced economies will shrink significantly by 6.1 percent in 2020, and emerging market and developing economies, which typically have growth levels well above advanced economies, will decline by 1.0 percent.
Noting that this is a baseline scenario, the IMF chief economist said in a more adverse scenario, global gross domestic product (GDP) could fall even further by an additional 3 percent in 2020 if the pandemic does not recede in the second half of this year.
Flattening the spread of COVID-19 using lockdowns allows health systems to cope with the disease, which then permits a resumption of economic activity, said the IMF chief, urging countries to continue to spend generously on their health systems, perform widespread testing, and refrain from trade restrictions on medical supplies.
In response to a question from Xinhua, Gopinath said this is not a time to restrict the trade of medical supplies and essential equipment around the world, and that “it is very important that this does not become a feature where we reverse all the gains that we’ve got from globalization.”
“The world needs a healthy recovery. It needs a strong recovery. And that will not come about if the world de-globalizes because that would severely reduce productivity in the world. And that’s the last thing we want at this time,” she said.