Pneumonia epidemic: IMF predicts global economic contraction comparable to the Great Depression-BBC News

On April 9, Georgieva, president of the International Monetary Fund (IMF), said the new crown pneumonia will cause the worst recession since the Great Depression of the 1930s.

Five days later, the IMF announced the “World Economic Outlook 2020”, predicting that the world economy will shrink by 3% this year.

Based on these predicted data, the global economic contraction rate in 2020 will be the highest since the Great Depression in the 1930s. In comparison, the financial crisis caused the global economic contraction by 0.7% in 2009.

According to IMF estimates, this year and the next two years, the global economic loss will reach 9 trillion dollars, the scale is equivalent to the total economic volume of a Japan plus a Germany, the two countries are the third and fourth most economies great in the world.

From the “Great Depression” to the “Great Blockade”

Agathe Demarais, director of global forecasts for The Economist Intelligence Unit (EIU), told BBC Chinese that the IMF’s latest forecast (3% global contraction) is more or less in line with the Unit’s latest forecast. Intelligence Department of The Economist. Before the outbreak of the new crown, The Economist’s Intelligence Unit estimated that global real GDP growth would be weak this year, at 2.3%. But the epidemic changed the rules of the game, and the global economy is now expected to shrink by 2.5% this year.

In three months, The Economist Intelligence Unit’s forecast for global GDP growth has grown from 2.3% to -2.5%, and the IMF forecast has also changed from an optimistic 3.3% to -3%.

The impact of the new crown epidemic on the economy was shown quickly, and Georgieva described “altering the social and economic order with” lightning speed and scale that we have never seen before. “

“Just three months ago, we also expected our per capita income in more than 160 member countries to achieve positive growth in 2020,” said Georgieva. “And today, this number is reversed. Now we predict This year, there will be negative growth in per capita income in more than 170 countries.”

Three months ago, the first phase of the Sino-US trade agreement was signed, and the world economy showed signs of an upward recovery.

In February, the outbreak initially broke out in China, and economists often compared it to SARS 17 years ago, fearing that the outbreak would do great harm to China’s consumer sector.

Since March, the epidemic has spread across the world, and American actions have historically melted away. The impact of the epidemic on the economy began to contrast with the financial crisis of 12 years ago. The G20 also launched a rescue plan that was exactly the same as that year.

From the end of March to the present, the epidemic has continued to spread. The number of unemployed people in the United States has reached a new maximum in one week. The plight of the world economy has begun to be compared to the Great Depression of the 1930s.

Emerging market countries are particularly vulnerable

Under the economic crisis, consumption is reduced and the factory operating rate is reduced accordingly, meaning that local workers will receive reduced wages or even laid off. If their incomes are affected, they will further reduce demand and consumption. The economy thus fell into a vicious circle.

For emerging market countries, this type of hit is especially bad. Due to the turmoil in world markets, investors often exit emerging markets first.

Georgieva said investors have withdrawn about $ 100 billion from these economies, more than triple the size of the divestment during the same period during the global financial crisis.

Sherilynn Raga, an economist at the Overseas Development Institute (ODI), explained that if less money comes in, the country’s economy will perform poorly, which will often lead to further currency depreciation. Currency depreciation can mean a higher cost of living.

These countries not only faced a large outflow of foreign capital, but also faced economic stagnation after the “blockade” of the epidemic. The financial situation can harden under a double whammy.

To help fragile economies, the IMF and the World Bank urged creditor countries like China to temporarily suspend debt service payments on bilateral loans. The IMF itself is well prepared, deploying a $ 1 trillion loan capacity.

Life in developed countries is not easy

Europe and the United States have severe epidemics, and the IMF’s total economic volume will drop significantly.

The GDP of Italy and Spain, which is severely affected, is expected to decrease by 9.1% and 8.0%, respectively, and the total economies of Germany and France will decrease by 7% and 7%, 2%, respectively.

The total economic volume of the entire euro area will decrease by 7.5%, while the United States is slightly better, but is expected to decrease this year by 5.9%.

British predictions of its own economy are even worse. The UK Office of Budget Responsibility (OBR) said the country’s economy may shrink by 13% this year, the worst contraction in three centuries, and public debt will rise to its highest level since World War II.

On the contrary, the IMF hopes that the situation in China will be better than that of Europe and the United States. After the Chinese epidemic peaked in the first quarter, corporate activities are gradually picking up and the economy is expected to grow 1.2% in 2020, but it is also well below the estimated 6% before the outbreak. .

Although major economies have launched massive bailout plans, they also bury hidden concerns.

De Mare said that if efforts to contain the epidemic have depleted tax revenues in developed countries and public spending has increased significantly, it may trigger a sovereign debt crisis. European countries most affected by the epidemic, such as Italy and Spain, already had financial problems before the outbreak, further complicating the situation.

The massive rescue plan sharply increased the fiscal deficit. Later, the government had to use more tax revenue to pay off debts and interest, which affected long-term development and formed a “hangover effect” after the crisis.

In the post-epidemic era, the economic rebound remains slow

IMF chief economist Gita Gopinath said the IMF’s prediction scenario is that the new coronavirus epidemic in most countries will peak in the second quarter and decline in the second half of this year. Epidemic prevention measures will be phased out.

Even in this “best-case scenario,” the global economy may lose a total of $ 9 trillion in two years, which is more than the combined gross domestic product (GDP) of Germany and Japan.

However, it will partially recover in 2021, and the world economy has grown at a rate of 5.8% based on the contraction of the previous year. The IMF also recalled that its prediction has “great uncertainty”, and the end result may be much worse, depending on the development of the epidemic.

If the impact of the epidemic extends into the third quarter of this year, the IMF predicts that it may cause the “scar effect” of bankruptcy and long-term unemployment, and the global economy is likely to shrink further by 3%. .

The worst-case hypothesis is that if the epidemic breaks out again in 2021 and it is forced to take more blockade measures, it can lead to a further reduction in global gross domestic product (GDP) by 5-8 percentage points next year.