The International Monetary Fund has said the world economy will take a hit of $ 12 trillion (£ 9.6 trillion) from the Covid-19 pandemic after cutting its already bleak growth projections for the UK and other developed countries in 2020.
The IMF said it would take two years for world output to return to levels by the end of 2019, and warned that governments must be cautious about cutting financial support for their fragile economies.
In a forecast update released in April, the Washington-based IMF said it now expected the world economy to contract by 4.9% this year, compared to a 3% drop expected in the spring.
“The Covid-19 pandemic pushed economies into a Great Blockade, which helped contain the virus and save lives, but also triggered the worst recession since the Great Depression,” said IMF economic adviser Gita Gopinath. She added that there would be a drop in living standards for 95% of the countries this year.
The revised version of World Economic Outlook said the shutdown had caused a “catastrophic blow” to the global job market, adding that rising stock prices were out of place with the deepest recession of the era of the postwar period.
Each of the G7 industrial nations and major developing nations has had its growth forecast revised, in what the IMF described as a “crisis like no other.”
The nearly 5% drop in global output this year will be much deeper than the 0.1% drop recorded in 2009, after the near-global banking system crisis the previous fall. The IMF had already forecast 2020 as the worst year for global growth since the Great Depression of the 1930s.
The UK economy was on track to contract 10.2% in 2020, the Fund said. In April, using data collected before the severity of Britain’s closure was known, the IMF had thought the UK would contract by 6.5% this year. France and Italy are also expected to post double-digit declines in activity of 12.5% and 12.8% respectively.
The IMF said the coronavirus pandemic had been more negative for activity in the first half of 2020 than expected and that recovery is also expected to be slower. World growth is forecast to be 5.4% in 2021, up from 5.8%.
He said the forecasts were subject to an even greater amount of uncertainty than usual and were based on some key assumptions about the consequences of the pandemic: physical distancing that persists in the second half of 2020, long-term healing of damage greater than anticipated caused by the shutdown and a blow to productivity as surviving companies increased safety and hygiene practices in the workplace.
The IMF said it was also assuming that financial conditions, which have eased since spring, generally remained at current levels. “Alternative results to those of the baseline are clearly possible, and not only because of the evolution of the pandemic. The extent of the recent uptick in financial market sentiment appears disconnected from changes in the underlying economic outlook, raising the possibility that financial conditions will tighten more than is assumed at baseline. “
The IMF advised all countries, including those that had apparently exceeded spikes in infection, to ensure that their health systems were adequately resourced, and called on developed countries to ensure that poorer nations have access to adequate doses and Affordable vaccines when available.
“When blockades are required, economic policy must continue to cushion household income losses with considerable and well-targeted measures, as well as provide support to companies that suffer the consequences of mandatory restrictions on activity. In cases where economies reopen, targeted support should be gradually rolled out as recovery begins and policies should provide a stimulus to boost demand and alleviate and incentivize the reallocation of resources outside of sectors likely to emerge. constantly smaller after the pandemic. “
The IMF said that strong multilateral cooperation remains vital to mitigate the impact of the pandemic on the world’s poor. Progress made in reducing extreme poverty since 1990 was at risk.
“Beyond the pandemic, policymakers must cooperate to resolve trade and technological tensions that jeopardize an eventual recovery from the Covid-19 crisis,” the fund said.
Noting the record drop in greenhouse gas emissions during the pandemic, the IMF said policymakers should implement their climate change mitigation commitments and work together to scale up equitably designed carbon taxes or equivalent schemes .