Franklin Delano Roosevelt Memorial, bronze statues representing the Great Depression, waiting in a bread line by George Segal, Washington D.C, United States.
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The global economy will likely experience the worst financial crisis since the Great Depression this year, the International Monetary Fund said on Tuesday as governments around the world grapple with the Covid-19 pandemic.
The Washington-based organization expects the world economy to contract by 3% in 2020. However, in January, it had forecast growth in world GDP (gross domestic product) of 3.3% for this year.
“It is very likely that this year the world economy will experience its worst recession since the Great Depression, surpassing that of the global financial crisis ten years ago,” said Gita Gopinath, chief economist of the IMF, in the latest World Economic Outlook report. .
In January, the IMF had estimated growth of 3.4% of world GDP in 2021; it has now been revised to 5.8% (although growth is expected to come from a weaker base after the contraction forecast for 2020).
“A partial recovery is forecast for 2021, with growth rates above trend, but the level of GDP will remain below the trend before the virus, with considerable uncertainty as to the strength of the rebound,” said Gopinath.
This year’s dramatic deterioration in growth forecasts comes as other institutions also warn that the coronavirus epidemic poses enormous economic challenges. The World Trade Organization said last week as world trade contracts between 13% and 32% this year. The Organization for Economic Co-ordination and Development has also warned that the economic repercussions of the virus will be felt “for a long time”.
To contain the spread of the virus, many governments have put in place lockouts, allowing only people to leave their homes to buy groceries, medicines and, in some cases, to exercise. As a result, commercial activity has stopped in many countries.
The IMF, which dubbed the current crisis “the big lockdown,” said “this is a crisis like no other.” At a press conference on Tuesday, Gopinath explained “the scale and speed of the collapse of the activity that followed (the foreclosure) is unlike anything we have experienced in our lifetime . “
There is great uncertainty about the duration and intensity of the economic shock, he added, and stimulating economic activity is more difficult given the policies of social distancing and isolation required.
The IMF said it had received “an unprecedented number of calls for emergency funds”. Of its 189 members, more than 90 of them have requested financial support.
The fund, which provides financing to members in economic difficulty, has a lending capacity of $ 1 trillion.
The euro zone will be the most affected
The latest IMF forecasts suggest that the U.S. economy will shrink 5.9% this year. In comparison, the eurozone is expected to shrink 7.5%, but China is expected to grow 1.2% in 2020.
The economic situation will be particularly difficult in Italy and Spain, where GDP is expected to contract by 9.1% and 8% respectively, these two countries being the most affected in Europe by Covid-19. Both have a higher number of infections and deaths than in China, where the virus first appeared in late 2019.
How should governments react?
The IMF advises countries to focus on the health crisis first, spending on tests, medical equipment, and other healthcare costs.
He also said that governments should provide tax deferrals, wage subsidies and cash transfers to the most affected citizens and businesses; as well as to prepare the lifting of the locking measures.
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