The United Nations (UN) forecast on Wednesday that the coronavirus pandemic will shrink the global economy by 3.2 percent in 2020, the sharpest contraction since the Great Depression in the 1930s.
According to the UN’s mid-year report, the impact of the coronavirus crisis is expected to slash global economic output by nearly $8.5 trillion over the next two years, wiping out nearly all gains of the past four years.
In January, before the coronavirus became a pandemic, the UN had forecast a modest acceleration in growth of 2.5 percent for 2020.
However, UN chief economist Elliott Harris told a news conference on the occasion of launching the report that the global economic outlook “has changed drastically” since then, with the pandemic’s death tally soaring towards 300,000.
“With the large-scale restrictions of economic activities and heightened uncertainties, the global economy has come to a virtual standstill in the second quarter of 2020,” Harris said.
“We are now facing the grim reality of a severe recession of a magnitude not seen since the Great Depression.”
Nearly 90 percent of the global economy has been under some form of lock-down, disrupting supply chains, depressing consumer demand and putting millions out of work, the UN’s World Economic Situation and Prospects Report read.
The 3.2 percent contraction in the global economy forecast by the UN — 5 percent in developing countries and 0.7 percent in developing countries — is slightly higher than the 3 percent decline forecast by the International Monetary Fund (IMF) in mid-April for 2020.
But in a worst-case scenario, the UN said the global economy could shrink by 4.9 percent in 2020 if a second wave of coronavirus infections flares up and lockdowns continue into the third quarter of the year.
The IMF forecast that the global economy is set to rebound in 2021 with 5.8 percent growth though it said prospects next year are clouded by uncertainty.
The UN forecast more modest 3.4 percent economic growth in 2021 in developed economies and more robust growth of 5.3 percent in developing countries.
But in the worst-case scenario, the UN report said the global economy could contract by a further 0.5 percent in 2021 if a new wave of infections and lockdowns continues in the third quarter, which ends on September 30.
The United Nations also forecast a 15% contraction in world trade in 2020 as a result of sharply reduced global demand and disruptions in global supply chains.
Harris said: “early efforts to contain the pandemic fell short of market expectations, causing extreme financial market volatility in developing countries and rippling out to the rest of the world.”
“But the pandemic is inflicting damages on the real economy at unprecedented scale and speed,” he said. “As countries put in an all-out effort to contain COVID-19, the world is facing the most severe restrictions on movement and goods in recorded history.”
The pandemic is “exacerbating poverty and inequality,” with an estimated 34.3 million people likely to drop below the extreme poverty line of $1.90 a day in 2020 — 56 percent of them in Africa, the report said.
In addition, the report said an additional 130 million people may join the ranks of people living in extreme poverty by 2030, dealing a “huge blow” to global efforts to eradicate extreme poverty and hunger by the end of the decade.
Harris, who is also UN assistant secretary-general for economic development, said the most pessimistic scenario would have an additional 160 million people living in poverty by 2030.
With rising inequality, the UN official warned, “this will only intensify discontent and instability in many parts of the world.”
He said governments need to contain the pandemic and minimise its economic impacts.
“The balance between saving lives and saving jobs is as difficult as it is necessary to strike,” Harris add.
According to Harris, fiscal stimulus has been uneven across the world, and many developing countries have been unable to introduce sufficiently large packages because of sharp falls in foreign exchange flows from export and tourism revenues, remittances and new borrowing.
“In any event, unless there are major breakthroughs in vaccine development, economic activities will remain significantly limited, and any fiscal measure will be unlikely to be fully effective in stimulating investment and growth,” Harris said.
He added: “robust international coordination” is critical to contain the pandemic, minimise its spillover effects, and assist countries hardest hit by coronavirus.
“How quickly and effectively the international community will be able to contain the public health and socio-economic fallout of the pandemic will determine whether and how soon the world can return to pre-crisis levels of economic activities,”
