The first few months of 2020 was dominated by the Covid-19 pandemic. The world was ill-prepared for the impact and scale of this pandemic and so it has led to lockdowns and a yet to be determined impact on global growth. Covid-19 is expected to create the sharpest global economic contraction since the 1950s but unlike most global recessions, this is services-led as opposed to manufacturing-led which resulted in larger job losses.
According to the International Monetary Fund’s, World Economic Outlook, the update of 24th June (A Crisis Like No Other, An Uncertain Recovery), the global growth is projected at 4.9% for the year 2020 which is 1.9% less from that in April 2020 World Economic Outlook (WEO) forecast.
The Covid-19 pandemic definitely has left a negative impact on the World’s economy in the first half of 2020 and the recovery rate is projected to be slower than previously anticipated. According to IMF, the global growth in 2021 is projected to be 5.4% which will leave the GDP for the year 2021 to be 6.5% lower than the pre-Covid projections in the early 2020.
The global labor market has taken a disastrous hit, the global consumer spending is falling steeply and the companies have significantly cut back on business investments.
The coronavirus pandemic is set to cause a much deeper recession and a very slow-paced recovery. The economies with declining infection rates, the gradual recovery path in the updated forecast reflects persistent social distancing into the second half of 2020, sizeable damage to supply potential from the larger-than-anticipated hit to activity during the lockdown in the first and second quarters of 2020 and a hit to productivity as surviving businesses ramp up necessary workplace safety and hygiene practices. For economies struggling to control infection rates, an extensive lockdown will lay an additional toll on overall economic activity. According to the June 2020 Global Financial Stability Report (GFSR), there is a raising possibility that financial conditions may tighten more than assumed in the baseline.
Other than this, IMF has also broadly praised central banks like the Federal Reserve Bank for providing stimulus to help shore up the financial markets. IMF chief economist, Gita Gopinath warned that for the first time since The Great Depression, both emerging and advanced economies will be in recession and that there will be substantial differences across the individual economies, furthermore, China is forecasted to a post-economic growth of 1% since the country has passed the peak and has gotten a head start on its recovery whereas other countries like India, the economy is forecasted to shrink by 5% and other countries can even see a shrink of 10%.
The way out to the recovery is that all the countries must vastly step up its support of national initiatives including financial assistance which is urgently needed for countries facing health crises and an external funding shortfall, including through debt relief and financing through the global financial safety net. Post this pandemic, policymakers must also cooperate to resolve trade and technology tensions that might endanger a recovery from the Covid-19 crisis. Moreover, channeling of funding for vaccine production is required as trials advance, so that adequate and affordable doses are available to all countries. Besides lockdown guidelines, economic policies should continue to cushion household income losses with sizable and well-targeted measures as well as provide support to firms suffering the consequences of mandated restrictions on activity.
By Virtika Choudhry
Reference Links:
www.forbes.com/
www.imf.org/en/Publications/WEO