IMF Warns 'Great Lockdown' Global Recession Will Be Worst Since Great Depression
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The "Great Lockdown" fueled by the coronavirus pandemic will be the worst recession since the Great Depression and stands to worsen if the outbreak can't be contained, the International Monetary Fund projected on Tuesday.
Global gross domestic product will slide by 3% this year in the IMF's base scenario, assuming the pandemic threat fades in the second half of the year. Successful containment measures and strong policy support would then drive a 5.8% world GDP bounce in 2021, the fund said in its latest World Economic Outlook report.
The forecast trounces the 0.1% GDP contraction seen in 2009 during the peak of the financial crisis. US GDP is expected to shrink by 5.9% in 2020 before rebounding 4.7% the following year, the IMF estimated. The eurozone will suffer a 7.5% decline before posting a similarly sized recovery in 2021.
"This crisis is like no other," Gita Gopinath, the IMF's economic counselor, wrote in the report's foreword. "Like in a war or a political crisis, there is continued severe uncertainty about the duration and intensity of the shock."
Even in the IMF's dire base case, risks to economic growth are skewed to the downside. The agency laid out three scenarios should the world's fight against COVID-19 fall short. A pandemic lasting through 2020 would see the global economy contract another 3% beyond the baseline estimate, according to the IMF. A second outbreak in 2021 would push GDP nearly 5% below the fund's base scenario next year, effectively canceling its projection for a swift economic rebound.
In the IMF's worst case of the three scenarios, a longer outbreak in 2020 and a COVID-19 resurgence the following year would drag global output about 8% below its 2021 base case. Such a prolonged crisis would yield two years of sharp global GDP contraction, and would likely be even worse as public debt skyrockets and leaves "additional scarring," the fund said.
"Many countries face a multi-layered crisis comprising a health shock, domestic economic disruptions, plummeting external demand, capital flow reversals, and a collapse in commodity prices," the IMF said in a report. "Risks for a worse outcome predominate."
The report is the IMF's first since the coronavirus spread globally and shut down major economies. The agency's previous forecast saw global GDP growing by 3.3% in 2020, a stark reminder of what economists expected before the rapid coronavirus outbreak tanked economies in a matter of weeks.
Collaboration between nations is key in protecting against the outbreak and avoiding a worse economic downturn, the IMF said. Relief measures from governments and monetary authorities are necessary to padding against a total economic collapse and will create vital support for when economies come back online.
Nations must also cooperate in fighting the virus's spread until a treatment or vaccine arrives. The World Health Organization announced on Monday it has 70 coronavirus vaccine candidates under evaluation, with three leading candidates already being used in human trials. A preventative drug serves as the most effective way to end the COVID-19 crisis, but such vaccines are likely months away and can't be depended on to quickly save ailing economies, the IMF said.
"Until such medical interventions become available, no country is safe from the pandemic (including a recurrence after the initial wave subsides) as long as transmission occurs elsewhere," the organization added.