April 15, 2020–The global economy is headed towards to worst economic downturn since the Great Depression due to the COVID-19 pandemic, according to the world’s lender of last resort.
The International Monetary Fund now projects a contraction of 3 percent to the world economy. It’s a downgrade of 6.3 percentage points from the IMF’s January 2020 estimate. The difference is due to the global pandemic and the measures taken around the world to contain it.
“The magnitude and speed of collapsing activity that has followed is unlike anything experienced in our lifetimes,” said Gita Gopinath, IMF’s economic counselor and director the Research Department in a press briefing on April 14. “This makes the great lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis.”
The cumulative loss in the global economy could reach $9 trillion by 2021. Moreover, the contraction impacts nations worldwide, including advanced, emerging and developing economies.
Analysts project a partial recovery in 2021 with global growth of 5.8 percent. That assumes the pandemic fades and governments around the world can prevent widespread economic fallout, such as bankruptcies, extended job losses and financial crises.
Policy Must Meet Multiple Crises
Governments are facing multiple crises at once. Nearly every country in the world has reported coronavirus cases, with nearly 2 million cases worldwide and 128,000 deaths.
With global GDP projected to shrink by $9 trillion by 2021, policymakers are responding to the crisis in an “unprecedented manner” by helping people meet basic needs and keeping businesses afloat, the IMF reports.
The fund is providing $1 trillion to the most vulnerable economies and calling on advanced economies to coordinate fiscal stimulus measures and implement monetary policy based on data for inflation.
Meanwhile, governments worldwide have already injected $8 trillion in stimulus into their economies.
Massive Borrowing by Governments
The IMF estimates the response by governments is pushing public borrowing to unprecedented levels. The fund says government deficits are rising sharply across the world. Its analysts say multilateral cooperation and debt forgiveness are needed. Gopinath said if interest rates stay low, debt levels could stabilize.
‘Tremendous Uncertainty‘
Despite the actions of governments and large organizations like the IMF, the world still faces “tremendous uncertainty” going forward, Gopinath said.
“Commensurate with the scale and speed of the crisis, domestic and international policy responses need to be large, rapidly deployed and speedily recalibrated as new data becomes available,” she said.
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