World to suffer worst recession in 80 years
CORONAVIRUS TO SHRINK 2020 GLOBAL OUTPUT BY 5.2%
The global economy will contract the most since World War II this year due to the Covid-19 pandemic, reducing incomes and sending millions of people into poverty in emerging and developing nations, the World Bank said.
Global gross domestic product will probably shrink 5.2 per cent in 2020, the Washington-based development organisation said in its semi-annual Global Economic Prospects report yesterday.
Fourth deepest recession
That compares with a January projection for a 2.5 per cent expansion and would be the fourth-deepest recession of the past 150 years after 1914, 193032 and 1945-46, the World Bank said. Per capita output will contract in more than 90 per cent of countries, the biggest share since 1870. The economy will rebound in 2021, growing 4.2 per cent, it said.
“This is the first recession since 1870 triggered solely by a pandemic, and it continues to manifest itself,” Ceyla Pazarbazioglu, the World Bank’s vice president of equitable growth, finance and institutions, told reporters by phone. “Given this uncertainty, further downgrades to the outlook are very likely.”
The decline in per capita income may push 70 million to 100 million people into extreme poverty, she said.
“The global recession would be deeper if bringing the pandemic under control took longer than expected, or if financial stress triggered cascading defaults,” the World Bank said.
Outlook update on June 24
The International Monetary Fund will update its World Economic Outlook on June 24. In April, the fund forecast a 3 per cent contraction for this year, though chief economist Gita Gopinath has since said that the outlook has worsened. The methodologies are different because IMF aggregate forecasts are based on purchasing-power parity, which gives more weight to developing economies, while the World Bank uses market exchange rates.
Most central banks have cut interest rates to about or below zero to buffer the effect of the coronavirus, with the Federal Reserve starting an unprecedented range of emergency programs providing as much as $2.3 trillion in loans. Fiscalstimulus packages have varied. The US is providing about 15 per cent of GDP in support and Germany about 4.7 per cent, while Japan’s program is worth about 42 per cent of GDP.
For the 19 European countries who use the euro currency, the World Bank projected a drop of 9.1 per cent this year.
The World Bank said yesterday the world is facing an unprecedented health and economic crisis that has spread with astonishing speed and will result in the largest shock the global economy has witnessed in more than seven decades. Millions of people are expected to be pushed into extreme poverty.
In an updated Global Economic Prospects, the World Bank projected that global economic activity will shrink by 5.2 per cent this year, the deepest recession since a 13.8 per cent global contraction in 1945-46 at the end of the Second World War.
For the US, the updated World Bank forecast is for GDP to fall 7 per cent this year, before growing 3.9 per cent in 2021. That estimate is similar to top forecasters for the National Association for Business Economics who forecast a 5.9 per cent drop in for the US this year.
Drop in output
The International Monetary Fund in April projected a drop in global output of 3 per cent this year but it is expected that figure will be lowered when the IMF releases its forecast update in coming weeks.
For China, the world’s second largest economy, the World Bank forecast growth will slow this year to a barely discernible 1 per cent but rebound to 6.9 per cent in 2021. For the 19 European countries who use the euro currency, the World Bank projected a drop of 9.1 per cent this year.
The 5.2 per cent downturn this year will be the fourth worst global downturn over the past 150 years, exceeded only by the Great Depression of the 1930s and the periods after the World Wars.