Forecasting the “worst economic downturn since the Great Depression”, the International Monetary Fund said on Tuesday that growth for the year was likely to end up at minus three per cent, with a dramatic change evident since the last World Economic Outlook report in January.
Gita Gopinath, Economic Counsellor and Director of the IMF’s Research Department, said in a blog post that following the global lockdown in response to the coronavirus, “the magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes."
Many countries now face multiple crises - over health, finances, and a collapse in commodity prices - which “interact in complex ways. Policymakers are providing unprecedented support to households, firms, and financial markets, and, while this is crucial for a strong recovery, there is considerable uncertainty about what the economic landscape will look like when we emerge from this lockdown”, the IMF chief economist wrote.
Under the assumption that the pandemic and required containment, peaks in the second quarter for most countries, and recedes in the second half of the year, “in the April World Economic Outlook we project global growth in 2020 to fall to -3 percent. This is a downgrade of 6.3 percentage points from January 2020, a major revision over a very short period. This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis.”
But, there was also some room for optimism for next year, assuming COVID-19 fades and that policy actions taken around the world are effective in preventing widespread firm bankruptcies, extended job losses, and system-wide financial strains, “we project global growth in 2021 to rebound to 5.8 percent”, said Ms. Gopinath.
“This recovery in 2021 is only partial as the level of economic activity is projected to remain below the level we had projected for 2021, before the virus hit. The cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around $9 trillion, greater than the economies of Japan and Germany, combined.
Debt relief for the 25 poorest nations
The International Monetary Fund (IMF) said on Monday it was extending immediate debt service relief to its 25 poorest and most vulnerable member countries - in Africa, Asia, the Middle East and the Caribbean - to help them address the crippling economic effects of the COVID-19 pandemic.
The action, approved by the IMF’s Executive Board on Monday, is being taken under its revamped Catastrophe Containment and Relief Trust measures, which can provide about $500 million in grant-based relief to countries in emergency need.
“This provides grants to our poorest and most vulnerable members to cover their IMF debt obligations for an initial phase over the next six months”, said IMF Managing Director Kristalina Georgieva.
“And will help them channel more of their scarce financial resources towards vital emergency medical and other relief efforts”, she added in a statement.
The 25 countries are Afghanistan, Benin, Burkina Faso, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Gambia, Guinea, Guinea-Bissau, Haiti, Liberia, Madagascar, Malawi, Mali, Mozambique, Nepal, Niger, Rwanda, São Tomé and Príncipe, Sierra Leone, Solomon Islands, Tajikistan, Togo and Yemen.
Relief during Ebola epidemic
Established in February 2015 during the Ebola outbreak in Africa - and modified in March in response to the new coronavirus pandemic - the Catastrophe Containment and Relief Trust extends complement donor financing and IMF concessional lending through the Poverty Reduction and Growth Trust.
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Immediately available resources include a recent $185 million pledge by the United Kingdom and another $100 million provided by Japan; and others, including China and the Netherlands, are stepping forward with important contributions as well.
“I urge other donors to help us replenish the Trust’s resources and boost further our ability to provide additional debt service relief for a full two years to our poorest member countries,” Ms. Georgieva said.
On March 25, the IMF joined the World Bank Group (WBG) in calling upon all official bilateral creditors to suspend debt payments from the world’s 76 poorest countries and enable them to redirect funds towards confronting the economic fallout from the COVID-19 pandemic.