Global economy to plunge into deepest recession since World War II: World Bank Report

The emerging market and developing economies are predicted to shrink by 2.5 percent in 2020, their first contraction as a group in almost.

Created On: Jun 9, 2020 16:13 IST
World Bank
World Bank

The Global Economy is predicted to shrink by 5.2 percent in 2020, which is the deepest plunge since the Second World War, according to the forecasts of the World Bank. The severe contraction in the global economy is a result of the massive shutdown measures evoked across the world to contain the coronavirus pandemic. 

According to World Bank’s June 2020 Global Economic Prospects, the largest fraction of economies will see a decline this year in their per capita output since 1870. Millions are expected to fall into extreme poverty this year. 

The economic blow is expected to hit the hardest in countries worst-affected by the COVID-19 pandemic and those which heavily rely on global trade, tourism, commodity exports and external financing.

Key Highlights 

•  According to the World Bank report, economic activity among advanced economies is expected to shrink 7 percent in 2020 due to major disruption in domestic demand and supply, trade, and finance.

•  The emerging market and developing economies (EMDEs) are predicted to shrink by 2.5 percent in 2020, their first contraction as a group in almost. The per capita incomes are expected to decline by 3.6 percent.

•  Though the magnitude of disruption will vary from region to region, all emerging market and developing economies have vulnerabilities that can be magnified by external shocks. 

•  The interruptions in schooling and primary healthcare access are also likely to have lasting impacts on human capital development.

•  The U.S. economy is expected to contract by 6.1 percent this year, the Euro Area output is expected to shrink 9.1 percent, while Japan’s economy is anticipated to shrink by 6.1 percent.

According to the World Bank, the COVID-19 crisis is likely to leave long-lasting scars and pose major global challenges. World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasiogl said that their first order of business is to address the global health and economic emergency. Beyond that, Pazarbasiogl said that the global community must unite to find ways to rebuild a robust recovery to prevent more people from falling into poverty and unemployment.

Baseline Forecast

The baseline forecast, which assumes that the pandemic will slow down enough to allow the lifting of domestic restrictions by mid-year in advanced economies and a bit later in EMDEs, global growth is predicted to bounceback to 4.2 percent in 2021. While the advanced economies are predicted to grow at 3.9 percent as per this forecast, the EMDEs will bounce back to grow by 4.6 percent. 

The outlook is though uncertain, as it involves many downside risks such as the possibility prolonged pandemic, which can result in massive financial upheaval and disruption in global trade and supply chain. The downside outlook could lead the global economy to shrink by as much as 8 percent this year, followed by a sluggish recovery of just over 1 percent in 2021 with the output in EMDEs contracting by almost 5 percent in 2020. 

Regional Outlook:

East Asia and Pacific Region: The region’s growth is projected to fall to 0.5 percent in 2020, the lowest rate since 1967.

Europe and Central Asia Region: The regional economy is forecasted to fall by 4.7%, with recessions in nearly all countries. 

Latin America and the Caribbean: The economic activity in the region is predicted to plunge by 7.2 percent in 2020.6.9

Middle East and North Africa: The economic activity in the region is forecasted to contract by 4.2 percent this year as a result of the massive impact of the pandemic, especially on the oil market.

South Asia: The economic activity in the region is projected to fall by 2.7% in 2020 as pandemic containment measures hinder demand and services activity and uncertainty continues about the course of the private investment.

Sub-Saharan Africa: The regional economy is expected to fall by 2.8% in 2020, the deepest on record. 

What measures can be adopted to reduce the impact of COVID-19 pandemic?

Health and Economic Policy Action: As per the World Bank, there is an urgent need for health and economic policy action, including global cooperation, to reduce the consequences, protect vulnerable populations and strengthen the capacity of nations to prevent and effectively deal with similar events in the future. 

Strengthen Public Health Systems: It is also critically important for emerging markets and developing economies that are more vulnerable to strengthen their public health systems, address challenges posed by informality and limited safety nets and enact reforms that facilitate strong and sustainable growth once the crisis passes.

Provision of Additional Stimulus: The emerging market and developing economies with available fiscal space and affordable financing conditions can consider additional stimulus to help revive economic growth. It should be accompanied by measures to help restore medium-term fiscal sustainability, strengthen fiscal frameworks, increase domestic revenue mobilization and spending efficiency, and raise fiscal and debt transparency. 

Transparency: The transparency of all government financial commitments including debt-like instruments and investments is a significant step in creating an attractive investment climate and could make substantial progress after lifting the COVID lockdown. 

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