Beaten down by the coronavirus outbreak, the world economy in 2020 will suffer its worst year since the Great Depression of the 1930s, the International Monetary Fund (IMF) said in its latest forecast.
The fund said Tuesday that it expects the global economy to shrink 3% this year — far worse than its 0.1% dip in the Great Recession year of 2009 — before rebounding in 2021 with 5.8% growth, but stressed 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 $9 trillion in output over two years – greater than the combined gross domestic product (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% 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."
The new forecasts provide a somber backdrop to the IMF and World Bank spring meetings, which are being held by videoconference this week to avoid contributing to the spread of the virus. The meetings normally draw 10,000 people to a crowded two-block area of downtown Washington, D.C.
The IMF's managing director, Kristalina Georgieva, said last week that some $8 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.
Advanced economies hit hard
The global economy contracted 0.7% in 2009 – previously the worst downturn since the 1930s, according to IMF data. In January, before the extent of the coronavirus outbreak both inside and outside China was known, the IMF had predicted that the global economy would grow 3.3% in 2020 as U.S.-China trade tensions were starting to ease, with 3.4% growth seen for 2021.
Advanced economies, now suffering the worst outbreaks of the virus, will bear the brunt of the plunge in activity. The U.S. economy will contract 5.9% in 2020, with a rebound to 4.7% growth in 2021 under the fund's best-case scenario.
Eurozone economies will contract by 7.5% in 2020, with hard-hit Italy seeing its GDP fall 9.1% and contractions of 8% in Spain, 7% in Germany and 7.2% in France, the fund said. It predicted euro-area economies as a whole would match U.S. growth of 4.7% 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% in 2020, a reduction from 6% growth in the IMF's January forecast. China's economy is forecast to grow 9.2% 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%.
The fund called for central bank liquidity swap lines to be extended to more emerging market countries, which face a double problem of locked-down activity and tightening financial conditions caused by a massive outflow of funds to safe-haven assets such as U.S. Treasuries.
It said some countries may need to turn to temporary limits on capital outflows.
Worldwide trade will plummet 11% this year, the IMF predicts, and then grow 8.4% in 2021.
Georgieva last week warned that the world was facing “the worst economic fallout since the Great Depression.’’ She said that emerging markets and low-income nations across Africa, Latin America and much of Asia were at especially high risk. And on Monday, the IMF approved $500 million to cancel six months of debt payments for 25 impoverished countries so they can help confront the pandemic.
Just three months ago, the IMF had forecast that more than 160 countries would register income growth on a per-capita basis. Now, it expects negative per-capita income growth this year in 170 countries.
The IMF cautioned Tuesday that its latest forecast is shrouded by unknowns. They include the path that the virus will take; the effectiveness of policies meant to contain the outbreak and minimize the economic damage and uncertainty over whether, even many months from now, people will continue to isolate themselves and depress spending as a precaution against a potential resurgence of the virus.
On a hopeful note, the IMF noted that economic policymakers in many countries have engineered what it calls a “swift and sizable’’ response to the economic crisis. The United States, for instance, has enacted three separate rescue measures, including a $2.2 trillion aid package — the largest in history — that is meant to sustain households and businesses until the outbreak recedes and economic life begins to return to normal.
That package includes direct payments to individuals, business loans, grants to companies that agree not to lay off workers and expanded unemployment benefits. And Congress is moving toward approving a possible fourth economic aid measure.
Some countries can't afford sufficiently aggressive rescue plans, the IMF said, and “may require external support." Georgieva has said that the IMF is prepared to commit its $1 trillion in lending capacity to support nations that need help in dealing with the pandemic.
The IMF is also calling on countries to work cooperatively to fight the pandemic.
“Countries urgently need to work together to slow the spread of the virus and to develop a vaccine and therapies to counter the disease,’’ the lending agency said.