COVID-19 is inflicting high and rising human costs worldwide, and the necessary protection measures are severely impacting economic activity.
The IMF has predicted that it is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing 2008’s recession.
As a result of the pandemic, the global economy is projected to drop sharply by –3 percent in 2020, much worse than during the 2008–09 financial crisis, according to the IMF’s latest World Economic Outlook.
The Great Lockdown, as one might call it, is projected to shrink global growth dramatically, said Gita Gopinath.
“Great Lockdown” recession would be the steepest in almost a century and the world economy’s contraction and recovery would be worse than anticipated if the coronavirus lingers or returns.
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 normalizes, helped by policy support, noted the report.
If the Great Lockdown lasts longer or if there is a second outbreak next year — or both — the projected 2021 recovery could be as much as eight percent worse than the current forecast, the report maintained. A cure is the only sure way to move forward, but “until such medical interventions become available, no country is safe from the pandemic.”
IMF noted that there is extreme uncertainty around the global growth forecast. The economic fallout depends on factors that interact in ways that are hard to predict including:
- The pathway of the pandemic
- The intensity and efficacy of containment efforts
- The extent of supply disruptions
- Repercussions of the dramatic tightening in global financial market conditions
- Shifts in spending patterns
- Behavioral changes (such as people avoiding shopping malls and public transportation)
- Confidence effects
- Volatile commodity prices
Many countries face a multi-layered crisis comprising a health shock, domestic economic disruptions, plummeting external demand, capital flow reversals, and a collapse in commodity prices.
The report stated that effective policies are essential to forestall worse outcomes. Necessary measures to reduce contagion and protect lives will take a short-term toll on economic activity but should also be seen as an important investment in long-term human and economic health.
The immediate priority is to contain the fallout from the COVID-19 outbreak, especially by increasing health care expenditures to strengthen the capacity and resources of the health care sector while adopting measures that reduce contagion, said the report.
Economic policies will also need to cushion the impact of the decline in activity on people, firms, and the financial system; reduce persistent scarring effects from the unavoidable severe slow-down and ensure that the economic recovery can begin quickly once the pandemic fades, said the report.
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.
Such actions will help maintain economic relationships throughout the shutdown and are essential to enable activity to gradually normalize once the pandemic abates and containment measures are lifted, maintained the report.
And 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 channeling aid to countries with weak health care systems.
The IMF noted that Fiscal measures will need to be scaled up if the stoppages to economic activity are persistent, or the pickup in activity as restrictions are lifted is too weak Economies facing financing constraints to combat the pandemic and its effects may require external support.
Broad-based fiscal stimulus can preempt a steeper decline in confidence, lift aggregate demand, and avert an even deeper downturn. But it would most likely be more effective once the outbreak fades and people are able to move about freely, said the report.
The report further highlighted that 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 channeling aid to countries with weak health care systems.
IMF maintained that countries urgently need to work together to slow the spread of the virus and to develop a vaccine and therapies to counter the disease. Until such medical interventions become available, no country is safe from the pandemic (including a recurrence after the initial wave subsides) as long as transmission occurs elsewhere.