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COVID-19 will shrink Global Economy by 3.2% in 2020
Published on: 2020-05-14
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In this May 7 2020 file photo a pedestrian walks by The Framing Gallery closed due to the COVID 19 pandemic in Grosse Pointe Mich

In this May 7, 2020, a pedestrian walks by The Framing Gallery, closed due to the COVID-19 pandemic, in Grosse Pointe, Mich

Against the backdrop of a devastating pandemic, the global economy is projected to contract sharply by 3.2 percent this year, according to the United Nations World Economic Situation and Prospects mid-2020 report published on Wednesday.

A closed restaurant in Milans Galleria Vittorio EmanueleA closed restaurant in Milan’s Galleria Vittorio Emanuele

The global economy is expected to lose nearly US$8.5 trillion in output over the next two years due to the COVID-19 pandemic, wiping out nearly all gains of the previous four years. The sharp economic contraction, which marks the sharpest contraction since the Great Depression in the 1930s, comes on top of anemic economic forecasts of only 2.1 percent at the start of the year.

An employee produces toilet paper for exporting on the production line of a paper companyAn employee produces toilet paper for exporting on the production line of a paper company

The report estimates that GDP growth in developed economies is expected to plunge to minus 5 percent in 2020. A modest, 3.4 percent growth — barely enough to make up for the lost output — is expected in 2021. World trade is forecast to contract by nearly 15 percent in 2020 amid sharply reduced global demand and disruptions in global supply chains.

Nearly 90 percent of the world economy has been under some form of lockdown, disrupting supply chains, depressing consumer demand and putting millions out of work. Under the baseline scenario, the developed economies are expected to contract by 5 percent in 2020, while the output of developing countries will shrink by 0.7 percent.

A chain is seen on the gates of a closed shopping arcade in Leeds city center West Yorkshire on April 14 2020A chain is seen on the gates of a closed shopping arcade in Leeds city center, West Yorkshire, on April 14, 2020

The pandemic will likely cause an estimated 34.3 million people to fall below the extreme poverty line in 2020, with 56 percent of this increase occurring in African countries. An additional 130 million people may join to the ranks of people living in extreme poverty by 2030, dealing a huge blow to global efforts for eradicating extreme poverty and hunger. The pandemic, which is disproportionately hurting low-skilled, low-wage jobs, while leaving higher-skilled jobs less affected - will further widen income inequality within and between countries.

Facing an unprecedented health, social and economic crisis, governments across the world have rolled out large fiscal stimulus measures — equivalent to an estimated 10 percent of GDP — to combat the pandemic and minimize its livelihood impacts. However, the depth and severity of the crisis foreshadows a slow and painful recovery.

The report highlights that the pandemic could foster a new normal, fundamentally reshaping human interactions, inter-dependence, trade and globalization, while accelerating digitalization and automation. A rapid surge in economic activities online will likely eliminate many existing jobs, while creating new jobs in the digital economy. The net wage and employment effects could be negative, further aggravating income inequality.

A nearly empty St. Marks Square in Venice Italy in MarchA nearly empty St. Mark’s Square in Venice, Italy, in March

Most developing economies — saddled with chronic fiscal deficits and already high levels of public debt — are finding it very hard to implement sufficiently large fiscal packages, which have thus far averaged less than 1 percent of their GDP. Falling exports and growth are rapidly undermining the debt sustainability of many developing countries, particularly those that are heavily dependent on commodities, tourism revenues or remittances. Growing debt distress poses an enormous challenge to these countries, further constraining their ability to implement much-needed stimulus measures.

The report cautions against the risk of large fiscal and monetary stimulus measures — with trillions of dollars of new liquidity injected into the financial system — contributing to the quick recovery of equity and bond prices, while ignoring productive investments. Global liquidity per capita surged since the global financial crisis in 2008, while productive investment per capita stagnated.









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