The world is about to experience the deepest recession in decades, World Bank forecasts reveal.
The shocks due to COVID-19 pandemic are expected to plunge the global economy into the worst recession since the second world war, the World Bank reveals in its Global Economic Prospects report published last week.
The World Bank’s baseline forecast expects a 5.2% contraction of the global gross domestic product (GDP) in 2020. This is the deepest recession that will be experienced by the world in eight decades — three times steeper than the decline during the 2009 global recession.
The baseline scenario assumes that the pandemic will be sufficiently quelled by mid-year. Worse outcomes are possible if the pandemic were to last longer or if countries fail to adequately address the economic disruptions.
“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” according to World Bank Group Vice President for Equitable Growth, Finance and Institutions Ceyla Pazarbasioglu.
Per capita incomes of all emerging markets and developing economies (EMDEs) are expected to decline this year, which will push millions into poverty.
In terms of GDP growth, World Bank’s forecasts are also bleak for the vast majority of economies in the world. This marks the first time that the economic output of EMDEs will contract in six decades.
Even among the advanced economies, a seven percent shrinkage is expected to be experienced this year.
In the United States, for instance, a massive 7.9 percentage-point decline in the GDP growth forecast from January 2020 has been recorded. The outlook for the Euro Area is even worse, with its growth projection going down by 10.1 percentage points compared to the beginning of this year.
Countries reliant on global trade, tourism, commodity exports, and external financing are expected to take the heaviest damages from the pandemic. Long-term effects on human capital development are also expected due to the paralysation of schooling and primary healthcare access.
The World Bank points out that the rarity of a pandemic poses big challenges for economists and countries.
The limited understanding of forecasters and economists on a pandemic-driven recession makes it difficult to accurately anticipate its impact. This is why further downgrades in future forecasts are expected as experts continue to gain more knowledge.
This lack of experience also makes it more difficult for countries to deal with the economic downfall due to the pandemic since the kind of economic shocks the world has been exposed to tend to be either financial or policy-driven.
With this, the World Bank highlights the importance of creating safety cushions to dampen the impact of similar events in the future through the strengthening of public health systems and fiscal frameworks.
Moreover, the World Bank also emphasized the importance of transparency across all government financial commitments in order to create an attractive investment climate that can aid in paving the road towards recovery after the pandemic.