The massive and brutal shock caused by the Coronavirus (COVID-19) epidemic and the measures taken to halt it are pushing the global economy into a deep recession. According to World Bank projections, global GDP will decline by 5.2% this year, marking the deepest global recession since World War II..
COVID-19 is driving the global economy into its worst recession since World War II
For the first time since 1870, an unprecedented number of countries will record a decline in per capita production, according to the World Bank in its most recent semi-annual edition of the World Economic Outlook.
Economic activity in advanced economies is expected to decline by 7% in 2020, reflecting severe disruptions to domestic supply and demand, as well as trade and finance. The group of emerging and developing market economies is also expected to experience their first contraction in sixty years. With GDP falling by 2.5%. Projections indicate a 3.6% decline in per capita income, pushing millions of people into extreme poverty this year.
The countries most affected are those with the most severe epidemic and those characterized by heavy reliance on global trade, tourism, commodity exports and external financing. Although the magnitude of the crisis varies from region to region in the world, all emerging and developing countries suffer from vulnerabilities that have been exacerbated by these external shocks. In addition, school closures and increased difficulties in accessing primary health care are likely to have lasting impacts on human capital development.
“These prospects are very worrying because the crisis risks having lasting consequences and leading to major planetary hardships,” says Sila Pazarbasioglu, World Bank Group Vice President for Growth, Finance, and Equitable Institutions. The first priority is to address global health and economic emergencies. But then, the international community must unite to find solutions that will restore the greatest possible recovery and combat worsening poverty and unemployment. ”
The baseline scenario predicts a global recovery to 4.2% in 2021, with a growth rate of 3.9% in advanced economies and 4.6% in emerging market and developing countries. This scenario depends on a sufficient ebb and flow of the epidemic to allow national restrictions to be lifted by mid-year in the first and after So a little in the second, to reduce its negative repercussions in the world in the second half of the year, as well as a rapid recovery in financial markets.
However, the outlook is very uncertain and dominated by downside risks, including the hypothesis of a longer-than-expected outbreak of the pandemic, lasting financial disruption, and weakening of global trade and supply chains. . In a more pessimistic scenario, the economy could decline by 8% globally this year, and nearly 5% in emerging and developing economies, while the global recovery is limited to just over 1% in 2021.
In the United States, the economy is expected to contract to 6.1% this year, amid disruptions to anti-epidemic measures. The decline in production in the euro area is expected to reach 9.1% in 2020, due to the interruption of economic activity due to the size of the epidemic. The Japanese economy is also expected to contract by 6.1% after the slowdown in activity attributed to the preventive measures against the Coronavirus.
The latest edition of the WEO dedicates several special reports to the key aspects of this unprecedented economic shock:
The Place of History of the COVID-19 Recession: An analysis of 183 economies between 1870 and 2021 provides a historical perspective of global recessions.
Different growth scenarios: Short-term growth projections are subject to an extraordinary level of uncertainty that requires the development of different scenarios.
The impact of the weight of the informal economy on the impact of the epidemic: The health and economic implications of the epidemic are likely to be most severe in countries with a predominance of the informal sector.
The outlook for low-income countries: The poorest countries are paying a high human and economic price for this epidemic.
Regional Economic Implications: Different developing regions present specific vulnerabilities that uniquely expose them to the epidemic and the resulting economic crisis.
Impact on global value chains: The disruption of global value chains is likely to amplify the shockwave caused by the epidemic to trade, production and financial markets.
The ongoing fallout from the pandemic: Deep recessions associated with the pandemic are likely to cause lasting damage to investment, undermine human capital through unemployment and weaken global trade and supply chains. (This chapter was published on June 2)
Consequences of cheap oil: Low oil prices due to an unprecedented drop in demand are not expected to mitigate the effects of the epidemic, but it could play a positive role during the recovery. (This chapter was published on June 2)
The epidemic imposes an urgent need to take health and economic measures, including through global cooperation, to alleviate the shock, protect vulnerable populations and enhance the ability of countries to anticipate and manage crises similar to epidemic crises due to their extreme vulnerability, it is absolutely essential that emerging and developing economies do not strengthen their health systems. Public not only, but also responding to challenges posed by the dominance of the informal sector and the lack of social safety nets and to initiate reforms that ensure strong and sustainable growth after the crisis.
Those with favorable financial space and financing terms may consider increasing their stimulus measures if the effects of the pandemic persist. These efforts must be accompanied by measures that contribute to the reliable restoration of fiscal sustainability in the medium term, with an emphasis on strengthening fiscal frameworks, increasing domestic revenue mobilization and spending efficiency, and improving budget and debt transparency.
Ensuring transparency of all financial liabilities and debt-like instruments and public investments is a critical first step in creating an attractive investment climate, an issue that could be the subject of significant progress this year.
East Asia and the Pacific: Growth in the region is expected to decline to 0.5% in 2020, the lowest since 1967, due to disruption caused by the epidemic.
Europe and Central Asia: The regional economy is expected to contract by 4.7% this year, as nearly all countries enter recession.
Latin America and the Caribbean: The shocks caused by the epidemic will shrink regional economic activity by 7.2% in 2020.
Middle East and North Africa: Economic activity in the region is expected to contract by 4.2% due to the epidemic and changes in the oil market.
South Asia: Economic activity in the region is expected to contract by 2.7% in 2020, as epidemic measures hinder consumption and the services sector, while uncertainty affects the economy, and health developments impede private investment.
Sub-Saharan Africa: Economic activity for the region is expected to contract by 2.8% in 2020, entering an unprecedented recession.