The global economy will likely suffer the worst financial crisis since the 1930s-era Great Depression due to COVID-19 pandemic disruptions and shutdowns, International Monetary Fund officials forecast on Tuesday.
IMF said in its latest World Economic Outlook it expects the global economy to contract by 3% in 2020, a huge departure from its forecast in January of 3.3% growth in global GDP for this year. That would make the economic devastation from coronavirus-fueled lockdowns greater even than the damage from the 2008 global financial crisis.
"This is a downgrade of 6.3% from January 2020, a major revision over a very short period," Gita Gopinath, IMF's chief economist, said in the international organization's IMFBlog. "This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis."
IMF said wealthy and developing nations are suffering a recession due to the pandemic, something that has not happened since the Great Depression. That inflicts human costs worldwide, it said, and the needed responses are severely impacting economic activity.
Better times in 2021
Gopinath forecast global growth rebounding to 5.8% if the pandemic recedes this year and global policy actions effectively prevent widespread bankruptcies, extended job losses and system-wide financial strains.
"This recovery in 2021 is only partial as the level of economic activity is projected to remain below the level we had projected for 2021, before the virus hit," she wrote. "The cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars, greater than the economies of Japan and Germany, combined."
Social distancing, testing and contact tracing are helping some countries to slow the spread of COVID-19. If the pandemic lasts the year, global GDP could fall another 3%. If it continues into 2021, IMF sees the potential for a staggering 8% further decrease.
"Multilateral cooperation is vital to the health of the global recovery," Gopinath wrote. "To support needed spending in developing countries, bilateral creditors and international financial institutions should provide concessional financing, grants, and debt relief."