At the beginning of March, I’d discussed the possibility that the fast-growing spread of COVID-19 would herald a once-in-a-hundred-years global economic shock. That was days before the official declaration of a pandemic by the World Health Organization and, along with the exponential growth in the disease’s spread, the economic implications became clearer.
This week, the International Monetary Fund, in its authoritative quarterly World Economic Outlook, sounded a dire alarm that the COVID–19-induced global economic crisis — dubbed for now the “The Great Lockdown” — will be the most significant since the Great Depression of 1929-1939. The IMF’s projections suggest a three percent fall in global economic growth in 2020, a significant downgrade of 6.3 percentage points from the organization’s January outlook.
“Assuming the pandemic fades in the second half of 2020 and that policy actions taken around the world are effective in preventing widespread firm bankruptcies, extended job losses, and system-wide financial strains, we project global growth in 2021 to rebound to 5.8 percent,” Gita Gopinath, the IMF’s economic counselor and director of the research department, writes.
“Protecting lives and allowing health care systems to cope have required isolation, lockdowns, and widespread closures to slow the spread of the virus. The health crisis is therefore having a severe impact on economic activity,” the Fund observed in its Outlook.
In relative terms, the growth hit to emerging markets is to be somewhat tamer — if still severe — than the eye-popping contractions projected by the Fund for Europe and the United States. For instance, the eurozone is expected to see a 7.5 percent contraction in GDP and the United States 5.9 percent.
Emerging markets, meanwhile, can expect to see contractions of between 1 and 2.2 percent, if China is excluded from the calculus, the IMF projected. In absolute terms, the economic activity lost to COVID-19 lockdowns the world over will amount to some $9 trillion, the Fund expects.
The report is clear in its recommendations, suggesting that only good public health policy — in the form of continued lockdown policies and social distancing promotion — will allow for an economic recovery. The Fund does not recommend a premature return to normal economic activity, acknowledging the grave harm to public health that might accompany a surge in COVID-19 cases.
The IMF’s outlook is not the last word on the anticipated effects of COVID-19, but what it offers is a clear sense of the scale of the global economic distress to come. Despite much ink having been spilled already on the anticipated geopolitical implications of the COVID-19 economic crisis, it appears that it remains too early to tally the effects.
But what is less uncertain is that this pandemic will be nothing short of a global watershed — with a clear before and after.