The global economy is on track to shrink by 5.2 percent this year amid the COVID-19 pandemic, the deepest recession since the Second World War, the World Bank Group said in its latest Global Economic Prospects released Monday.
Economic activity in advanced economies is anticipated to contract 7 percent in 2020 as domestic demand and supply, trade, and finance have been severely disrupted, the report said. The U.S. economy is projected to shrink by 6.1 percent this year, while Euro Area could see a 9.1-percent contraction.
Emerging market and developing economies (EMDEs), meanwhile, are expected to contract by 2.5 percent this year, “their first contraction as a group in at least sixty years,” according to the report. The economic activity in Latin America and the Caribbean, in particular, could plunge by 7.2 percent in 2020.
Growth in East Asia and Pacific is projected to fall to 0.5 percent in 2020, the only region that could see growth this year, the report said. The Chinese economy is expected to grow by 1 percent this year.
The outlook for global economy is “highly uncertain and downside risks are predominant,” including the possibility of a more protracted pandemic, financial upheaval, and retreat from global trade and supply linkages, the report noted.
A downside scenario could lead the global economy to shrink by as much as 8 percent this year, followed by a sluggish recovery in 2021 of just over 1 percent, with output in EMDEs contracting by almost 5 percent this year.
“The current episode has already seen by far the fastest and steepest downgrades in global growth forecasts on record,” said World Bank Prospects Group Director Ayhan Kose. In the previous Global Economic Prospects report released in January, the multilateral lender projected global economy to grow by 2.5 percent this year.
“If the past is any guide, there may be further growth downgrades in store, implying that policymakers may need to be ready to employ additional measures to support activity,” Kose said.
In mid-April, the International Monetary Fund (IMF) projected in its World Economic Outlook that the global economy is on track to contract by 3 percent in 2020 as a result of the pandemic, and has recently signaled it would likely further cut forecasts in the near future.
“Very likely we are going to come up with the update to our projections some time in June,” IMF Managing Director Kristalina Georgieva said during a virtual event in May, noting that incoming data from many countries is worse than the IMF’s “already pessimistic projections.”
The World Bank‘s semiannual forecast for the global economy predicts a moderate recovery next year, with growth of 4.2 percent under the baseline forecast, which assumes that the pandemic recedes sufficiently to allow the lifting of domestic mitigation measures by mid-year in advanced economies and a bit later in EMDEs, and that adverse global spillovers ease during the second half of the year.
Advanced economies are expected to grow 3.9 percent next year and…