By Jeph Ajobaju, Chief Copy Editor
Global Gross Domestic Product (GDP) may shrink by as much as $9 trillion by 2022, beginning with 3 per cent decline this year, all caused by coronavirus, as the world is in the grip of recession not seen for a century.
The alert is from the International Monetary Fund (IMF), which says that for the first time, the pandemic may force both developed and emerging economies to fall into the severest recession since the Great Depression of the 1930s.
The global economy will contract by 3 per cent in 2021 as countries around the world shrink at the fastest pace in decades, IMF Chief Economist, Gita Gopinath, warned.
The global decline is the worst since the Great Depression of the 1930s, she stressed, and the pandemic has plunged the world into a “crisis like no other”.
She said a prolonged outbreak would test the ability of governments and central banks to control the crisis, which could knock $9 trillion off global GDP over the next two years.
81% of global workforce impacted
A total 81 per cent of the global workforce of 3.3 billion people, full and part time, have had their workplace fully or partly closed because of coronavirus, according to the International Labour Organisation (ILO).
It says lockdowns forced by the pandemic may wipe out 195 million full time jobs alone worldwide by the second quarter of 2020, with the Arab states predicted to be the hardest hit region with a decline of five million workers.
“Workers and businesses are facing catastrophe, in both developed and developing economies,” said Guy Ryder, Director General of ILO, an agency of the United Nations.
“We have to move fast, decisively, and together. The right, urgent, measures, could make the difference between survival and collapse.”
Nowhere to hide
The latest World Economic Outlook of the IMF praised the “swift and sizeable” response in countries like the United Kingdom, Germany, Japan, and the United States, but said no country would escape the downturn.
It expects global growth to rebound to 5.8 per cent in 2021 if the pandemic fades in the second half of 2020.
Today’s “Great Lockdown” presents a “grim reality” for policymakers, who face “severe uncertainty about the duration and intensity of the shock,” Gopinath said.
“A partial recovery is projected for 2021. But the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound.
“Much worse growth outcomes are possible and maybe even likely.”
UK in sharpest decline in a century
The IMF predicts the UK economy will shrink by 6.5 per cent in 2020, compared with the IMF’s January forecast for 1.4 per cent GDP growth.
A decline of this magnitude would be bigger than the 4.2 per cent drop in output seen in the wake of the financial crisis, the BBC reports.
It would also represent the biggest annual fall since 1921, according to reconstructed Bank of England data dating back to the 18th century.
However, this is half the annual rate expected by the OBR, which expects GDP to drop by 35 per cent in the three months to June.
The UK’s furlough scheme, designed to keep workers in a job amid the government lockdown, is expected to limit the rise in unemployment to 4.8 per cent in 2020, from 3.8 per cent last year.
UK Chancellor Rishi Sunak has pledged billions of pounds in wage subsidies and loan guarantees to help workers and businesses through the shutdown.
The Bank of England has also slashed interest rates to a new low and freed up billions of pounds for commercial banks to lend.
Hardship worldwide
Gopinath said for the first time since the Great Depression, both advanced and developing economies are expected to fall into recession, and growth in advanced economies would not get back to its pre-virus peak until at least 2022.
The US economy is expected to contract by 5.9 per cent this year, the biggest annual decline since 1946. Unemployment is also expected to jump to 10.4 per cent this year.
A partial recovery is expected in 2021, with expected US growth of 4.7 per cent.
In China, the economy is expected to expand by just 1.2 per cent this year, which would be the slowest growth since 1976. Australia is expected to suffer its first recession since 1991.
There are “severe risks of a worse outcome,” the IMF warned, explaining that if coronavirus took longer to control and there was a second wave in 2021, this would knock an additional 8 percentage points off global GDP.
This scenario could trigger a downward spiral in heavily-indebted economies, the IMF added, saying investors might be unwilling to lend to some of these nations, which would push up borrowing costs.
“This increase in sovereign borrowing costs or simply fear of it materialising, could prevent many countries from providing the income support assumed here.”
The way out
While longer lockdowns will constrain economic activity, the IMF said quarantines and social distancing measures were vital.
“Upfront containment measures are essential to slow the spread of the virus and allow health care systems to cope and to help pave the way for an earlier and more robust resumption of economic activity.
“Uncertainty and reduced demand for services could be even worse in a scenario of greater spread without social distancing”
The IMF set out four priorities for dealing with the pandemic.
- More money for health care systems, financial support for workers and businesses
- Continued central bank support and a clear exit plan for the recovery.
- The world should work together to find and distribute treatments and a vaccine.
- Many developing nations would need debt relief in the coming months and years.