Just as we had the Great Depression in the 1920s, the IMF expects this year's global crisis to reduce world GDP by 3 percent.
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This story originally appeared on Business Insider
The ” Great Enclosure ” fueled by the coronavirus pandemic will be the worst recession since the Great Depression and will worsen if the outbreak cannot be contained, the International Monetary Fund said Tuesday .
Global gross domestic product will decrease by 3% this year in the IMF baseline scenario, assuming that the pandemic threat fades in the second half of the year. Successful containment measures and strong political support would drive a rebound of 5.8% of world GDP in 2021, the fund said in its latest World Economic Outlook report.
The forecast exceeds the 0.1% contraction of GDP observed in 2009 during the peak of the financial crisis. The United States' GDP is expected to decline 5.9% in 2020 before recovering 4.7% the following year, the IMF estimated. The eurozone will experience a 7.5% decline before registering a recovery of similar size in 2021.
“This crisis is like no other,” wrote Gita Gopinath, the IMF's economic adviser, in the foreword to the report. “As in a war or a political crisis, there is continued severe uncertainty about the duration and intensity of the shock.”
Even in the IMF's dire base case, the risks to economic growth are skewed to the downside. The agency presented three scenarios in case the global fight against COVID-19 fell short. According to the IMF, a pandemic lasting until the end of 2020 would see the global economy contract another 3% beyond the benchmark estimate. A second outbreak in 2021 would push GDP nearly 5% below the fund's baseline scenario next year, effectively canceling its projection of a rapid economic rebound.
In the worst-case scenario of the IMF in all three scenarios, a longer outbreak in 2020 and a resurgence of COVID-19 the following year would drag global output around 8% below its base case of 2021. Such a crisis Prolonged would produce two years of sharp contraction in global GDP, and would likely be even worse as public debt soars and leaves “additional scars,” the fund said.
“Many countries face a multi-layered crisis that includes a health shock, internal economic upheavals, falling external demand, reversals of capital flows and a collapse in commodity prices,” the IMF said in a report. “The risks of a worse outcome predominate.”
The report is the IMF's first since the coronavirus spread globally and closed major economies. The agency's previous forecast saw global GDP growth of 3.3% in 2020, a clear reminder of what economists expected before the rapid coronavirus outbreak sank economies in a matter of weeks.
Collaboration between nations is key to guarding against the outbreak and avoiding a worse economic recession, the IMF said. Aid measures by governments and monetary authorities are necessary to prevent a total economic collapse and will create vital support for when economies come back online.
Nations must also cooperate in fighting the spread of the virus until a treatment or vaccine arrives. The World Health Organization (WHO) announced Monday that it has 70 candidates for the coronavirus vaccine under evaluation, with three main candidates already being used in human trials. A preventative drug serves as the most effective way to end the COVID-19 crisis, but such vaccines are likely to be months away and cannot be relied upon to quickly save sick economies, the IMF said.
“Until such medical interventions are available, no country will be safe from the pandemic (including a recurrence after the initial wave subsides) as long as transmission occurs elsewhere,” the organization added.