COVID-19 could wipe US$9 trillion off global GDP over next two years
Income per capita in over 170 countries will shrink in 2020, as both advanced economies and emerging market and developing economies slip into recession because of the COVID-19 pandemic.
In a new blog post, the International Monetary Fund (IMF) projected the growth in advanced economies to be -6.1%, while emerging market and developing economies with normal growth levels well above advanced economies are also projected to have negative growth rates of -1.0% in 2020, and -2.2% when excluding China.
“This is a truly global crisis as no country is spared. Countries reliant on tourism, travel, hospitality, and entertainment for their growth are experiencing particularly large disruptions,” Gita Gopinath, the IMF’s chief economist, said. “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.”
She urged policymakers to continue to provide lifelines to households and businesses in the form of targeted fiscal, monetary and financial policies, which can come in the form of credit guarantees, liquidity facilities, loan forbearance, expanded unemployment insurance, enhanced benefits and tax relief.
“While the economy is shut down, policymakers will need to ensure that people are able to meet their needs and that businesses can pick up once the acute phases of the pandemic pass. This support should continue throughout the containment phase to minimise persistent scars that could emerge from subdued investment and job losses in this severe downturn.”
Planning for an eventual recovery must also begin, added Gopinath. As containment measures come off, policies should move to support demand, incentivise firm hiring, and repair balance sheets in the private and public sector to aid recovery, she said.
Assuming that COVID-19 fades in the second half of 2020 and that policies taken around the world are effective in preventing widespread firm bankruptcies, extended job losses and system-wide financial strains, IMF expects global growth in 2021 to rebound to 5.8%. However, in a worst-case scenario, global GDP could conceivably reduce by another -3% in 2020, and fall an additional 8% in 2021.