(...) We have just released the June 2020 edition of the
Global Economic Prospects
report—the World Bank’s semi-annual flagship publication on the
state of the world economy. In a nutshell, COVID-19 has delivered an
enormous global shock, leading to steep recessions in many countries.
The baseline forecast envisions a 5.2 percent contraction
in global GDP in 2020—the deepest global recession since the Second
World War, and the broadest collapse in per capita incomes since 1870.
In addition to discussing global and regional prospects, this edition
includes several thematic pieces, all around the
implications of the COVID-19 pandemic, including its likely
long-lasting adverse effects on potential growth, how it compares with
global recessions of the past 150 years, how it impacts oil markets, and
how informality exacerbates its effects. I briefly summarize
the main messages of the report below (to download the full report,
please use this
link). Thank you for your interest in our products. Best. Ayhan
Global Outlook: Pandemic, Recession: The Global Economy in Crisis.
The COVID-19 pandemic has, with alarming
speed, delivered a global economic shock of enormous magnitude, leading
to steep recessions in many countries. The baseline forecast envisions a
contraction of 5.2 percent in global GDP in 2020—the deepest global
recession in eight decades, despite unprecedented
policy support. Per capita incomes in the vast majority of emerging
market and developing economies (EMDEs) are expected to shrink this
year, tipping many millions back into poverty. The global recession
would be deeper if bringing the pandemic under control
took longer than expected, or if financial stress triggered cascading
defaults. The pandemic highlights the urgent need for health and
economic policy action—including global cooperation—to cushion its
consequences, protect vulnerable populations, and improve
countries’ capacity to prevent and cope with similar events in the
future.
How Deep Will the COVID-19 Recession Be?
Current projections suggest that the COVID-19 global recession will
be the deepest since the end of World War II, with the largest fraction
of economies experiencing declines in per capita output since 1870.
Output of EMDEs is expected to contract in 2020
for the first time in at least 60 years. The current global recession
is also unique in that global growth forecasts have been revised down
more steeply and rapidly than in any other recessions since at least
1990.
Regional Macroeconomic Implications of COVID-19.
The rapid rise of COVID-19
cases, together with the wide range of measures to control the spread
of the virus, has slowed economic activity precipitously in many EMDEs.
Growth forecasts for all regions have been severely downgraded. Many
countries have avoided more adverse outcomes
through sizable fiscal and monetary policy support measures. Despite
these measures, per capita incomes in all EMDE regions are expected to
contract substantially in 2020.
Lasting Scars of the COVID-19 Pandemic.
Lockdowns and other restrictions needed
to address the public health crisis, together with spontaneous
reductions in economic activity by many producers and consumers,
constitute an unprecedented combination of adverse shocks that is
causing deep recessions in many advanced economies and EMDEs.
Those EMDEs that have weak health systems; those that rely heavily on
global trade, tourism, or remittances from abroad; and those that depend
on commodity exports will be particularly hard-hit. Beyond its
short-term impact, deep recessions triggered by the
pandemic are likely to leave lasting scars through multiple channels,
including lower investment; erosion of the human capital of the
unemployed; and disintegration of global trade and supply linkages.
These effects may well lower potential output and labor
productivity in the longer term.
Adding Fuel to the Fire: Cheap Oil During the Pandemic.
The outbreak of COVID-19
and the wide-ranging measures needed to slow its advance have
precipitated a record decline in oil demand, a surge in oil inventories,
and, in March, the steepest one-month decline in oil prices on record.
In the context of the current restrictions on a broad
swath of economic activity, low oil prices are unlikely to do much to
buffer the effects of the pandemic, but they may provide some initial
support for a recovery once these restrictions begin to be lifted. Like
other countries, energy-exporting EMDEs face
an unprecedented public health crisis, but their fiscal positions were
already strained even before the recent collapse in oil revenues. To
help retain access to market-based financing for fiscal support
programs, these EMDEs will need to make credible commitments
to a sustainable medium-term fiscal position. For some of them, current
low oil prices provide an opportunity to implement energy pricing
policies that yield efficiency and fiscal gains over the medium-term.
How Does Informality Aggravate the Impact of COVID-19?
COVID-19 will take an especially heavy humanitarian and economic
toll on EMDEs with large informal sectors. Participants in the informal
sector—workers and small enterprises—are often not registered with the
government and hence have no access to government
benefits. Informality is associated with underdevelopment in a wide
range of areas, such as widespread poverty, lack of access to financial
systems, deficient public health and medical resources, and weak social
safety nets. These vulnerabilities have amplified
the economic shock to livelihoods from COVID-19 and threatened to throw
large numbers of people into extreme poverty.
PS: For our other periodical products, please visit:
Commodity Markets Outlook
and Global Monthly. For our stock tacking of the performance of EMDEs since the global financial crisis, see
A Decade Since the Global Recession. For details of our recent work on debt accumulation in EMDEs, see
Global Waves of Debt. For our comprehensive
database of fiscal space indicators, see
A Cross-Country Database of Fiscal Space. For our study on the evolution and prospects of inflation, see
Inflation in Emerging and Developing Economies. For our analytical work on topical policy issues, please visit
Policy Research Working Papers.
M. Ayhan Kose
Director
Prospects Group
Equitable Growth, Finance and Institutions
World Bank Group
T +1 (202) 473-8350
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ayhankose
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