The International Monetary Fund predicted the “Great Lockdown” recession would be the steepest in almost a century and warned the world economy’s contraction and recovery would be worse than anticipated if the coronavirus lingers or returns.
In its first World Economic Outlook report since the spread of the coronavirus and subsequent freezing of major economies, the IMF estimated on Tuesday that global gross domestic product will shrink 3% this year.
That compares to a January projection of 3.3% expansion and would likely mark the deepest dive since the Great Depression. It would also dwarf the 0.1% contraction of 2009 amid the financial crisis.
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In a further sign of pessimism, the IMF sketched out three alternative scenarios in which the virus lasted longer than expected, returned in 2021 or both. A lengthier pandemic would wipe 3% off GDP this year compared to the baseline, while protraction plus a resumption next year would mean 8% less output than projected in 2021, it said.“This crisis is like no other,” Gita Gopinath, the IMF’s chief economist, wrote in a foreword to its semi-annual report. “Like in a war or a political crisis, there is continued severe uncertainty about the duration and intensity of the shock.”
As with the virus’s reach, the economic hit is sweeping. In the U.S., gross domestic product is expected to contract 5.9%, compared with a 2% expansion in its last global outlook in January. It may grow 4.7% next year, the IMF said. The euro area will probably shrink 7.5% in 2020 and rxpand 4.7% in 2021, it said.
“Many countries face a multi-layered crisis comprising a health shock, domestic economic disruptions, plummeting external demand, capital-flow reversals and a collapse in commodity prices,” the IMF said. “Risks of a worse outcome predominate.”
The grim projections are a stark reversal from the IMF’s outlook less than two months ago. On Feb. 19, the fund told Group of 20 finance chiefs that “global growth appears to be bottoming out.” Three days later, Managing Director Kristalina Georgieva predicted the virus would likely cut just 0.1 percentage point from the fund’s global growth forecast for this year, although she acknowledged “more dire scenarios” were being studied.
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