Economic Outlook: IMF Gives 2020 Forecast As Coronavirus Causes Great Depression Worries

The International Monetary Fund on Tuesday predicted a 3% downturn in the global economy as a result of the coronavirus pandemic, the economy’s worst showing since the Great Depression of the 1930s. By comparison, the global economy suffered only a 0.1% dip in the Great Recession in 2009.

“As a result of the pandemic, the global economy is projected to contract sharply by –3 percent in 2020, much worse than during the 2008–09 financial crisis,” the IMF said in the introduction to its semiannual World Economic Outlook.

Just three months ago, the IMF was predicting global growth for the year of 3.3%. All that change as countries around the globe imposed lockdowns, shutdowns, social distancing and travel restrictions, bringing their economies to a standstill.

“This is a crisis like no other,” IMF chief economist Gita Gopinath told a news briefing.

Gopinath estimated global gross domestic product losses at $9 trillion.

Nonetheless, once the crisis passes, IMF predicts a measured recovery in the second half of the year and 5.8% GDP growth globally in 2021.

“The risks for even more severe outcomes, however, are substantial. Effective policies are essential to forestall the possibility of worse outcomes, and the necessary measures to reduce contagion and protect lives are an important investment in long-term human and economic health,” IMF said.

“Because the economic fallout is acute in specific sectors, policymakers will need to implement substantial targeted fiscal, monetary, and financial market measures to support affected households and businesses domestically.”

Gopinath said in the forecast’s forward normal economic stimulus moves largely are useless in the current crisis since stimulating the most-affected sectors like travel is “undesirable.”

“The Great Lockdown, as one might call it, is projected to shrink global growth dramatically. A partial recovery is projected for 2021 with above-trend growth rates, but the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound,” Gopinath said, adding public health and economic policies will play crucial roles.

The forecast praised large central banks for their recent actions in providing monetary stimulus and liquidity facilities, bolstering confidence and limiting amplification of the economic shock delivered by the pandemic.

The forecast predicted a 6.1% drop in GDP for advanced economies, with Italy suffering the worst blow at 9.1%, followed by Spain at 8%. The eurozone is expected to see a 7.5% drop while the U.S. is forecast to see a 5.9% drop; the United Kingdom, a 6.5% fall, and Japan, a 5.2% dip. Emerging markets, which saw 3.7% growth last year, are expected to suffer a 1% drop, with Mexico posting the worst loss at 6.6%.

When the expected recovery comes in 2021, advanced economies are expected to post a 4.5% gain in GDP, led by the Germany at 5.2% and Italy at 4.8%. Emerging markets are expected to grow at 6.6%, led by China at 9.2%.