The global economy is set to sharply contract by 3 percent in 2020 due to the economic fallout of the coronavirus pandemic, the IMF said in its World Economic Outlook report on Tuesday.
The coronavirus, officially known as COVID-19, has healthcare systems pushed to the brink and caused authorities to declare large-scale lockdown procedures with businesses shuttered and people told to stay home. The implications of these measures on the economic growth has been catastrophic.
“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. Risks of a worse outcome predominate,” the report said.
The recession that the coronavirus will cause is very likely to eclipse the banking crisis in 2008, the Chief Economist of the IMF, Gita Gopinath, wrote in the report.
“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. The Great Lockdown, as one might call it, is projected to shrink global growth dramatically,” she said.
The multi-layered nature of the coronavirus crisis means that determining how different factors will interact with each other is difficult to predict. The report noted that the global growth forecast faces “extreme uncertainty” as such.
On Sunday, the IMF said that the coronavirus may be the biggest crisis since World War II.
“This may be the greatest global crisis we’ve faced in the postwar period,” said former IMF chief economist Maury Obstfeld.
The report noted that it is important for countries to put effective policies in place to forestall the worse outcomes.
“Necessary measures to reduce contagion and protect lives will take a short-term toll on economic activity but should also be seen as an important investment in long-term human and economic health,” it said.
Along with increased healthcare spending and other measures aimed at containing the spread of the virus, the IMF called on policymakers to “implement substantial targeted fiscal, monetary, and financial market measures to support affected households and businesses.”
These actions will be “essential” for normal business activity to gradually resume once the coronavirus begins to pass and lockdown measures can be lifted.
In the Middle East, the IMF expects contractions for all economies in 2020, with Saudi Arabia’s economy predicted to shrink 2.3 percent in 2020, while the UAE will shrink 3.5 percent.
The outlook for 2021 is more positive however. The global economy is projected to grow by around 5.8 percent. Saudi Arabia’s and the UAE’s economies are both also predicted to grow with estimates of 2.9 and 3.3 percent respectively.
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