Worst recession to be seen since World War-II: World Bank09 Jun '20
The COVID-19 shock and the resulting shutdown measures have plunged the global economy into a severe contraction, with the World Bank projecting a global economy shrink of 5.2 per cent this year. That would represent the deepest recession since World War-II, with the largest fraction of economies experiencing declines in per capita output since 1870, the bank says in its June 2020 Global Economic Prospects.
Economic activity among advanced economies is anticipated to shrink by 7 per cent in 2020 as domestic demand and supply, trade and finance have been severely disrupted.
Emerging market and developing economies (EMDEs) are expected to shrink by 2.5 per cent this year, their first contraction as a group in at least sixty years. Per capita incomes are expected to decline by 3.6 per cent, which will tip millions of people into extreme poverty this year, the document said.
The blow is hitting hardest in countries where the pandemic has been the most severe and where there is heavy reliance on global trade, tourism, commodity exports and external financing.
While the magnitude of disruption will vary from region to region, all EMDEs have vulnerabilities that are magnified by external shocks. Moreover, interruptions in schooling and primary healthcare access are likely to have lasting impacts on human capital development, a World Bank press release citing the document.
“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” said World Bank Group vice president for equitable growth, finance and institutions Ceyla Pazarbasioglu.
Under the baseline forecast, global growth is forecast to rebound to 4.2 per cent in 2021, as advanced economies grow 3.9 per cent and EMDEs bounce back by 4.6 per cent.
The baseline forecast assumes that the pandemic recedes sufficiently to allow the lifting of domestic mitigation measures by mid-year in advanced economies and a bit later in EMDEs, adverse global spillovers ease during the second half of the year, and dislocations in financial markets are not long-lasting.
However, the outlook is highly uncertain and downside risks are predominant, including the possibility of a more protracted pandemic, financial upheaval, and retreat from global trade and supply linkages.
A downside scenario could lead the global economy to shrink by as much as 8 per cent this year, followed by a sluggish recovery in 2021 of just over 1 per cent, with output in EMDEs contracting by almost 5 per cent this year.
The US economy is forecast to contract by 6.1 per cent this year, reflecting the disruptions associated with pandemic-control measures. Euro Area output is expected to shrink 9.1 per cent in 2020 as widespread outbreaks took a heavy toll on activity. Japan’s economy is anticipated to shrink 6.1 per cent as preventive measures have slowed economic activity.