Global economy will suffer worst year since the Great Depression, warns IMF – World

Struck by the coronavirus outbreak, the world economy in 2020 will suffer its worst year since the Great Depression of the 1930s, the International Monetary Fund (IMF) said in its latest forecast on Tuesday.

The IMF said it expects the world economy to shrink 3 percent this year, far worse than its 0.1 percent drop in the Great Recession year of 2009, before recovering in 2021 with growth of 5.8 percent. However, he acknowledges that the prospects for a rebound next year are clouded by uncertainty.

The grim assessment represents an impressive downgrade on the IMF's part. In its previous forecast in January, before Covid-19 emerged as a serious threat to public health and economic growth worldwide, the international lending organization had forecast moderate global growth of 3.3pc this year. But far-reaching measures to contain the pandemic (closings, company closings, social distancing, and travel restrictions) have suddenly brought economic activity to a near halt in much of the world.

"The world has been put on a huge blockade," IMF chief economist Gita Gopinath told reporters. "This is a crisis like no other."

Gopinath said the cumulative loss of global gross domestic product (GDP), the broadest indicator of economic output, could amount to $ 9 trillion, more than the economies of Germany and Japan combined.

The IMF's World Economic Outlook twice a year prepared for this week's spring meetings of the IMF of 189 nations and its sister lending organization, the World Bank. Those meetings, along with a meeting of finance ministers and central bankers from the world's 20 largest economies, will take place virtually for the first time in light of the coronavirus outbreak.

In its latest perspective, the IMF expects economic contractions this year of 5.9 percent in the United States, 7.5 percent in the 19 European countries that share the euro, 5.2 percent in Japan and 6.5 percent percent in the UK. China, where the pandemic originated, is expected to post 1.2pc growth this year. The world's second largest economy, which had crashed, began to open much earlier than other countries.

World trade will plummet 11pc this year, the IMF predicts, and then grow 8.4pc in 2021.

Last week, IMF Managing Director Kristalina Georgieva warned that the world faces "the worst economic consequences since the Great Depression." She said that emerging markets and low-income nations in Africa, Latin America and much of Asia were at particularly high risk. And on Monday, the IMF approved $ 500 million to cancel six months of debt payments for 25 impoverished countries.

Shrouded by unknowns

The IMF warned that its forecast is shrouded in unknowns. They include the path the virus will take; the effectiveness of policies aimed at containing the outbreak and minimizing economic damage; and uncertainty about whether, even within many months, people will continue to isolate themselves and depress spending as a precaution against a possible resurgence of the virus.

In a hopeful note, the IMF noted that policymakers in many countries have designed what it calls a "rapid and sizeable" response to the economic crisis. In the United States, for example, the Federal Reserve has aggressively stepped in to smooth loan markets. And the US Congress. USA It has enacted three separate rescue measures, including a $ 2.2 trillion aid package, the largest in US history. Intended to support households and businesses until the outbreak recedes and economic life begins to normalize.

That package includes direct payments to individuals, business loans, grants to companies that agree not to fire workers, and expanded unemployment benefits. And Congress is moving toward the approval of a possible fourth measure of financial aid.

Gathered in their own virtual meeting, financial officials from the Group of Seven Major Industrial Countries, including United States Secretary of the Treasury Steven Mnuchin and Fed President Jerome Powell, pledged to "use all available policy tools "to achieve a strong recovery.

Meghan Clem, CEO of wedding and party planning company Intertwined Events, says she hopes some government loans will be made so she can continue to pay her staff. The next two to three months will likely be the worst of the crisis for intertwined events.

"All events were canceled or postponed for the fourth quarter, so we are seeing a total revenue halt for May, June, and probably July," said Clem, whose company is based in Irvine, California, USA. USA

In Europe, the sudden recession has exposed the vulnerabilities of the shared euro currency. The 19-country bloc lacks a powerful central treasury. And it has trouble coming up with a unified fiscal response, with northern European countries like the Netherlands and Germany blocking shared loan proposals backed by all countries. Member countries did agree on what could mean a stimulus of half a trillion euros. But the conditions in part of the package mean that part of the money can never be used.

Italy, which has been deeply affected by the crisis, is expected to suffer a 9 percent drop this year in its gross domestic product, and its debt burden could rise from an already high 135 percent of GDP. Fears of a new debt crisis have arisen, although for now the stimulus from the European Central Bank has calmed the loan markets.

European governments are implementing plans that subsidize workers' pay in companies that have had to put employees on shorter hours or send them home. The idea is for companies to keep workers on board so they can quickly resume without having to recruit and train new employees later. Your workers' spending also helps support other companies. The system stands in stark contrast to practices in the United States, where claims for unemployment benefits have soared.

In Germany, 2.35 million workers are expected to participate in the program. They will receive at least 60pc of net payment.

Some countries cannot afford aggressive rescue plans, the IMF said, and "may require external support."

Georgieva has said that the IMF is prepared to commit its $ 1 trillion loan capacity to support nations that need help in dealing with the pandemic.