The International Monetary Fund predicted Tuesday that the “Great Lockdown” recession, fueled by the coronavirus pandemic, will be the steepest in almost a century and warned that the world economy’s contraction and recovery would be worse than anticipated if the coronavirus lingers or returns.
In its first World Economic Outlook report since the spread of the coronavirus and subsequent freezing of major economies, the IMF estimated that global gross domestic product will shrink 3% this year.
That compares to a January projection of 3.3% expansion and would likely mark the deepest dive since the Great Depression. It would also dwarf the 0.1% contraction of 2009 amid that financial crisis.
While the fund anticipated growth of 5.8% next year, which would be the strongest in records dating back to 1980, it cautioned risks are tilted to the downside. Much depends on the longevity of the pandemic, its effect on activity and related stresses in financial and commodity markets, it said.
Even if the IMF’s forecast proves accurate, it said output in both advanced and emerging markets would undershoot their pre-coronavirus trends through 2021, seemingly dashing any lingering hopes of a V-shaped economic rebound from the health emergency. The cumulative loss in global GDP this year and next could be about $ 9 trillion - bigger than the economies of Japan and Germany combined, IMF chief economist Gita Gopinath said.
“This is a crisis like no other, which means there is substantial uncertainty on the impact it will have on people’s lives and livelihoods,” Gopinath said in an online briefing.
In its forecasts, the IMF assumes that countries experiencing severe epidemics will lose about 8% of working days this year during containment efforts and the loosening of restrictions.
In a further sign of pessimism, the IMF sketched out three alternative scenarios in which the virus lasted longer than expected, returned in 2021 or both. A lengthier pandemic would wipe 3% off GDP this year compared with the baseline, while protraction plus a resumption next year would mean 8% less output in 2021 than projected, it said.
The IMF’s baseline scenario assumes that the pandemic fades in the second half of this year and that containment measures can be gradually wound down.