The global economy will likely suffer its worst contraction this year since the Great Depression due to the coronavirus pandemic, with prospects for a recovery in 2021 shrouded in “extreme uncertainty,” the International Monetary Fund warned Tuesday.
In its latest World Economic Outlook report, the IMF said it now expects global gross domestic product to contract by 3% in 2020 — a downgrade of 6.3 percentage points from January 2020, when it forecast growth of 3.3% for the year.
The revised forecast assumes the pandemic and the required containment resulting from it peak in the second quarter for most countries and recede in the second half of this 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,” Gita Gopinath, the IMF’s chief economist, said in the report.
For 2021, the Fund is projecting that global growth will rebound to 5.8% but it said the recovery “depends critically on the pandemic fading in the second half of 2020, allowing containment efforts to be gradually scaled back and restoring consumer and investor confidence.”
“As with the size of the downturn, there is extreme uncertainty around the strength of the recovery,” the report said.
As CNBC reports, the IMF’s “dramatic downgrade in this year’s growth expectations comes as other institutions also warn that the coronavirus outbreak is bringing massive economic challenges.”
The World Trade Organization said last week that global trade will contract by between 13% and 32% this year while the Organization for Economic Coordination and Development has also warned the economic hit from the virus will be felt “for a long time to come.”
Policymakers have responded to the crisis with, among other things, credit guarantees, liquidity facilities, loan forbearance, expanded unemployment insurance, enhanced benefits, and tax relief.
The IMF said the projected recovery “assumes that these policy actions are effective in preventing widespread firm bankruptcies, extended job losses, and system-wide financial strains.”