The global economy is heading into the steepest downturn since the Great Depression of the 1930s, leaving “scarring” that will last well into the century, it was warned yesterday.
The International Monetary Fund predicts the global economy will shrink by 3.0% this year as a result of what the agency described as “The Great Lockdown”.
In its 2020 World Economic Outlook, the IMF predicts a partial recovery in 2021, with the world economy growing at a 5.8% rate, but warns of “extreme uncertainty” and that outcomes could be far worse, if the pandemic persists.
IMF chief economist Gita Gopinath stated: “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.”
Even going on the IMF’s best-case scenario, the world is likely to lose a cumulative $9 trillion in output over two years.
This is greater than the combined gross national product of Germany and Japan, Ms Gopinath added.
These predictions are being made on the assumption that the Covid-19 pandemic will peak in most countries during the second quarter and fade in the second half of the year.
But if the outbreaks continue into the third quarter it could cause a further three percent shrinkage in 2000 and a slower recovery next year.
This would be due to the “scarring” effects of bankruptcies and widespread prolonged unemployment.
If there is a second outbreak in 2021 that forces more shutdowns it could cause a reduction of five to eight percentage points in the global gross domestic product baseline forecast
for next year, keeping the world in recession for a second straight year.
The IMF report added: “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.”
Last week the IMF managing director Kristalina Georgieva said that around $8 trillion in fiscal stimulus being poured in by governments to stave off collapse was not likely to be enough.
The IMF is also relief for the poorest countries.
