Virus will shrink world economy by 3.2% — U.N.

The United Nations forecast Wednesday that the COVID19 pandemic will shrink the world economy by 3.2% this year, the sharpest contraction since the Great Depression in the 1930s.

The U.N.’s midyear report said the impact of the coronavirus crisis is expected to slash global economic output by nearly $8.5 trillion over the next two years, wiping out nearly all gains of the past four years.

In January, before COVID19 became a pandemic, the U.N. had forecast a modest acceleration in growth of 2.5% in 2020.

But U.N. chief economist Elliott Harris told a news conference that the global economic outlook “has changed drastically” since then, with the pandemic’s death toll climbing toward 300,000.

“With the largescale restrictions of economic activities and heightened uncertainties, the global economy has come to a virtual standstill in the second quarter of 2020,” he said. “We are now facing the grim reality of a severe recession of a magnitude not seen since the Great Depression.”

According to the report, nearly 90% of the world economy has been under some form of lockdown, disrupting supply chains, depressing consumer demand and putting millions out of work.

The 3.2% contraction forecast by the United Nations is slightly higher than the 3% plunge forecast by the International Monetary Fund in midApril for 2020.

But in a worstcase scenario, the U.N. said the global economy could shrink by 4.9% in 2020 if a second wave of COVID19 infections flares up and lockdowns continue into the third quarter of the year.

The IMF forecast that the global economy will rebound in 2021 with 5.8% growth, though it said prospects next year are clouded by uncertainty.

The United Nations World Economic Situation and Prospects report also forecast a 15% contraction in world trade in 2020 as a result of sharply reduced global demand and disruptions in global supply chains.

Harris said that early efforts to contain the pandemic “fell short of market expectations, causing extreme financial market volatility in developing countries and rippling out to the rest of the world.”

“But the pandemic is inflicting damages on the real economy at unprecedented scale and speed,” he said. “As countries put in an allout effort to contain COVID19, the world is facing the most severe restrictions on movement and goods in recorded history.”

Harris said governments need to contain the pandemic and minimize its economic impacts.

“The balance between saving lives and saving jobs is as difficult as it is necessary to strike,” he said.