Coronavirus (COVID-19) is a global catastrophe. Many commentators say it will result in the greatest economic downturn since the Great Depression of the 1930s, with severe economic consequences across the globe.
Clearly, the outlook for the global economy is bleak at present. Millions of people are losing their jobs, their homes, their savings. Businesses have been forced to close, with many facing the prospect of never reopening.
Moreover, the global financial rout is deepening, despite the hundreds of billions being poured into economies by governments and major central banks desperate to ease the strain.
Outlook
Attempting to make sense of what lies in store for the global economy in 2020 is analysis by the International Monetary Fund (IMF) in its ‘2020 World Economic Outlook: The Great Lockdown’. The report, released in April, examines the economic impact of the pandemic on the world’s markets, and the measures that need to be taken to contain and stabilise its spread.
The report outlines some unnerving findings. The global economy is projected to shrink by 3 percent, much worse than the contraction during the 2008-09 financial crisis. Nine out of 10 IMF member countries (189 countries are members) are expected to contract due to the impact of the COVID-19 pandemic. The US, the world’s largest economy with a nominal GDP of $21.44 trillion, is forecast to see a 5.9 percent drop in GDP in 2020, with the European Union (EU) facing a 7.1 percent fall, and Sub-Saharan Africa a 1.6 percent drop. China and India, in contrast, are projected to see a 1.2 percent and 1.9 percent increase in GDP in 2020, respectively.
The IMF also analyses the impact COVID-19 is having on advanced economies compared to emerging market and developing economies. The former is forecast to experience a 6.1 percent drop in GDP by the year’s end, while the latter’s GDP is expected to fall by 1.0 percent.
The IMF outlook suggests that “governments can soften the financial impact of the pandemic with rapid coordinated action”, which includes direct payments to families and short term loans for businesses, action it says will “keep health systems strong, save lives and livelihoods, and lay the foundation for recovery”.
Growth projections
Despite the damage currently being inflicted on the global economy, the IMF is projecting a partial recovery next year. According to the report, in a baseline scenario – which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound – the global economy is projected to grow by 5.8 percent in 2021 as economic activity normalises, helped by policy support.
Multilateral cooperation
Containing the virus has not been easy. However, if fiscal and monetary authorities can keep financial markets operating and prevent a glut of bankruptcies, then the global economy, albeit set for a sharp contraction, can avoid being snapped.
“The risks for even more severe outcomes are substantial”, warns the IMF. “Effective policies are essential to forestall the possibility of worse outcomes, and the necessary measures to reduce contagion and protect lives are an important investment in long-term human and economic health.
“Because the economic fallout is acute in specific sectors, policymakers will need to implement substantial targeted fiscal, monetary, and financial market measures to support affected households and businesses domestically.
“Internationally, strong multilateral cooperation is essential to overcome the effects of the pandemic, including to help financially constrained countries facing twin health and funding shocks, and for channelling aid to countries with weak health care systems.”
Hopefully, states the IMF, a vigorous recovery may then be on the cards.
© Financier Worldwide
BY
Fraser Tennant