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The Global Economy Will Suffer Worst Recession since the Great Depression, IMF Says

The International Monetary Fund (IMF) says that the 2020 global economy is likely to contract by as much as 3%. This is worse than the 2008 global financial crisis and the worst since the 1930s Great Depression.

The IMF made these remarks on Tuesday in their latest issue of the World Economic Outlook report. This is in direct contrast to their January estimation. The global gross domestic product (GDP) is forecasted to expand by 3.3% in 2020.

“It is very likely that this year the global economy will experience its worst recession since the great depression, surpassing that seen during the global financial crisis a decade ago,” said IMF’s Chief Economist, Gita Gopinath

In 2021, however, the IMF expects the global economy to partially recover. However, this is only if governments worldwide can contain and mitigate coronavirus for the remainder of the year.

Future Growth Will Depend On Whether and When the Coronavirus Pandemic Will End

The IMF further said the projected partial recovery in 2021 is dependent on COVID-19 infection rates going down this year.

“This is a crisis where the economic shock is something that is not exactly controlled by the economic policy,” Gopinath told CNBC.

Compared to the Great Depression, the IMF stated that the world has a better advantage now in terms of health. In January, the IMF based its forecast on trade tensions, but the focus has now changed to monetary and fiscal policies.

“On the economic front, I think it makes a big difference that there are lenders of last resort that monetary policy is proactively able to come in and ensure enough liquidity in markets, that fiscal policy is able to play a major role in supporting firms and households.”

The IMF further emphasized the dire economic state of the world. When referring to this crisis the Great Lockdown, they commented that it is one of a kind crisis. They added that it would result in the biggest and fastest global economic activity collapse in the world.

Global Poverty Likely to Increase 

Based in Washington, DC, the IMF provides financial support to its economically struggling members around the world and has a lending capacity of $1 trillion. Out of its 189 member countries, the IMF said that more than 90 have already requested financial support from them.

The world is yet to determine how bad the economic crisis will get and how long the pandemic will last. Therefore, implemented isolation and social distancing policies will dull the impact of economic stimulation measures.

Gopinath stated that a recession of this magnitude is bound to result in a massive loss of income. This is especially true of people with more volatile sources of income and will result in both increased levels of poverty and inequality.

In the US, the economy will contract by 5.9% while a higher rate of 7.5% will take hold in Europe. Only in China will the economy grow by 1.2% in 2020.

Spain and Italy will experience the biggest downturn at 9.1% and 8% respectively, being the two European countries to record the highest Coronavirus infection and mortality rates.

Governments Should Prioritize the Health Crisis

Despite the negative impact on their economies, the IMF is urging governments to focus on implementing measures to directly curb Coronavirus’ threat to health.

IMF is also advising Governments to offer citizens other relief measures. This includes tax deferrals, wage subsidies, cash handouts and preparation to transition them from the lockdown.

Meanwhile, other international organizations have also issued global warnings as a result of the COVID-19 lockdown measures. The World Trade Organization stated that global trade will likely contract by 13-32%. At the same time, the Organizations for Economic Coordination and Development cautioned that the unfolding economic effects will last for a long time in the coming future.

Last week, the United Nations also published a study- Estimates of the Impact of COVID-19 on Global Poverty. The report estimates that 8% of the world, roughly half a billion people, will fall into poverty due to Coronavirus.

The Food and Agriculture Organization of the United Nations (FAO) issued a warning that the world might experience global hunger. Developing countries are therefore likely to be most affected. The FAO estimated that the food crisis would start as early as April or May.

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