UN: global economy could shrink nearly 1%

NEW YORK CITY: The global economy could shrink almost 1% this year due to the new coronavirus, a sharp reversal from the prepandemic forecast of 2.5% growth, the United Nations says.

The UN Department of Economic and Social Affairs warned yesterday the decline could be even deeper if restrictions on economic activities extended into the third quarter of the year and fiscal stimulus efforts did not support income and consumer spending.

By comparison, the world economy contracted 1.7% during the global financial crisis in 2009.

In the bestcase scenario, moderate declines in private consumption, investment and exports would be offset by increases in government spending in the seven major industrialised nations and China, leading to global growth of 1.2%.

In the worstcase scenario, global output would contract 0.9%, ‘‘based on demandside shocks of different magnitudes’’ to China, Japan, South Korea, the United States and the European Union and a 50% decline in oil prices.

This scenario ‘‘assumes that wideranging restrictions on economic activities in the EU and the United States would extend until the middle of the second quarter’’.

Increasing restrictions on the movement of people and lockdowns in Europe and North America were hitting the service sector hard, the report said.

Those sectors accounted for more than a quarter of all jobs in those countries and as these businesses lost revenue, unemployment was likely to increase sharply.

The report said the negative effects of economic restrictions in richer developed nations would soon spill over into developing countries.

The severity of the impact would largely depend on the duration of restrictions on the movement of people and economic activities in major economies and on the size and impact of fiscal responses.

‘‘Urgent and bold policy measures are needed, not only to contain the pandemic and save lives, but also to protect the most vulnerable in our societies from economic ruin and to sustain economic growth and financial stability,’’ UN undersecretarygeneral for economic and social affairs Liu Zhenmin said.