World Bank’s grim forecast
RECESSION: GLOBAL ECONOMY WILL DECLINE
Bank expects economic growth to rebound by 2.9% next year.
If the World Bank’s latest economic “baseline” predictions prove correct, 2020 is likely to see world recession records being smashed as the Covid-19 pandemic deals a devastating blow to global growth. The “deepest global recession since World War II”.
The “highest synchronisation of national recessions since 1870”.
The “first output contraction” within emerging market and developing economies (EMDEs) since 1960.
The “fastest and steepest downgrade in [global] growth forecasts” on record and “more than twice as deep as the recession associated with the global financial crisis” in 2009.
These are some of the ominous predictions contained in the World Bank’s Global Economic Prospects report, published on Monday. In it the bank currently forecasts that the global economy will decline by 5.2%, while South Africa’s GDP will plunge 7.1%.
South Africa is expected to see one of the worse economic contractions in sub-Saharan Africa. The bank says the region overall is “on course to contract by 2.8% in 2020” – the deepest on record. Nigeria – the region’s largest economy – is expected to shrink by 3.2% this year.
“In Nigeria and South Africa – the two largest economies in the region – activity has fallen precipitously during the first half of this year,” the report notes.
“In South Africa, activity is expected to contract by 7.1% this year – the deepest contraction in a century and 8% weaker than previously forecast – as stringent but necessary domestic [Covid-19] containment measures, including an extended national lockdown, have severely disrupted activity,” the World Bank adds.
The bank’s forecast is in line with the latest South African Reserve Bank prediction that the economy will shrink by 7% in 2020. However, it’s well below “worse case” forecasts by the Business for South Africa (B4SA) alliance, which in May noted that the country’s GDP is likely to decline by between 10% and 17% this year.
B4SA’s double-digit GDP decline prediction is also in line with Bank of America Merrill Lynch’s recent forecast of the South African economy contracting by 10.3% 2020. However, the US bank is forecasting a bullish recovery of 4.8% in 2021.
Meanwhile, the World Bank expects South Africa’s economic growth to rebound by 2.9% next year, boosted by the government’s announced “10% of GDP” fiscal stimulus package, aimed at softening the impact of the pandemic.
“The recovery could gain further traction if planned structural reforms are implemented, including plans to improve public investment management and to encourage greater private-sector participation in infrastructure development,” it adds.
Commenting more broadly on the worldwide impact of Covid-19, the World Bank said in a statement: “The swift and massive shock of the coronavirus pandemic and shutdown measures to contain it have plunged the global economy into a severe contraction.”
It also warned that per capita incomes are expected to decline by 3.6% in EMDEs, which “will tip millions of people into extreme poverty” this year.
“The blow is hitting hardest in countries where the pandemic has been the most severe and where there is heavy reliance on global trade, tourism, commodity exports and external financing,” the bank noted.
“While the magnitude of disruption will vary from region to region, all EMDEs have vulnerabilities that are magnified by external shocks. Moreover, interruptions in schooling and primary healthcare access are likely to have lasting impacts.”
The deepest contraction in a century