Categories: Market Overview

IMF says the world will ‘very likely’ experience worst recession since the 1930s

The global economy will this year likely suffer the worst financial crisis since the Great Depression, the International Monetary Fund said Tuesday, as governments worldwide grapple with the Covid-19 pandemic.

The Washington-based organization now expects the global economy to contract by 3% in 2020. By contrast, in January it had forecast a global GDP (gross domestic product) expansion of 3.3% for this year.

“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,” Gita Gopinath, the IMF’s chief economist, said in the latest World Economic Outlook report.

In January, the IMF had estimated 3.4% growth for global GDP in 2021; this has now been revised up to 5.8% (although growth is expected to be coming from a lower base following 2020′s projected contraction).

“A partial recovery is projected for 2021, with above trend growth rates, but the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound,” Gopinath said.

The dramatic downgrade in this year’s growth expectations comes as other institutions also warn that the coronavirus outbreak is bringing massive economic challenges. The World Trade Organization said last week that global trade will contract by between 13% and 32% this year. The Organization for Economic Coordination and Development has also warned the economic hit from the virus will be felt “for a long time to come.”

To contain the spread of the virus, many governments have implemented lockdown measures, only allowing people to leave their houses to purchase groceries, medicines and, in some cases, to exercise. As a result, business activity has stalled in many countries.

How should governments react? The IMF is advising countries to focus on the health crisis first, by spending on testing, medical equipment and other health care related costs. It also said that governments should provide tax deferrals, wage subsidies and cash transfers to the most-affected citizens and firms; as well as to prepare for the lifting of lockdown measures.

IMF says the world will ‘very likely’ experience worst recession since the 1930s, CNBC, Apr 14

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This team of professional journalists announces the most interesting and influential articles from the major financial media as a brief summary. All such news may have sufficient potential to affect the course of trading assets.

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