WORLD BANK FORECASTS WORST RECESSION SINCE SECOND WORLD WAR ON VIRUS.
The global economy will contract the most since the Second World War 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 GDP will probably shrink 5.2 per cent in 2020, the organization said in its semi-annual Global Economic Prospects report Monday.
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, 1930-32 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.
Advanced economies will shrink seven per cent, led by a 9.1-per-cent contraction in the euro area, the lender said. Emerging and developing economies will shrink 2.5 per cent, their worst performance in data that starts in 1960, it said. Those with limited health- care capacity, deeply integrated global value chains, heavy dependence on foreign financing and extensive reliance on international trade, commodity exports and tourism are likely to be the hardest hit.
While the World Bank sees China’s economy eking out one-per-cent growth this year, the lowest rate since 1976, it forecasts India’s will shrink 3.2 per cent. U.S. GDP may contract 6.1 per cent.
The World Bank presents two scenarios. In one, where the COVID-19 outbreak persists for longer than expected, requiring the continuation or reintroduction of restrictions on movement, the global economy would shrink almost eight per cent this year. If control measures can be largely lifted in the near term, the contraction would be four per cent — still more than twice as deep as the global financial crisis of 2009.
“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.
The IMF will update its World Economic Outlook on June 24. In April, the fund forecast a three- 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 U.S. Federal Reserve starting an unprecedented range of emergency programs providing as much as US$ 2.3 trillion in loans. Fiscal- stimulus packages have varied. The U. S. 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, according to Bloomberg Economics.