World economy expected to contract by 5.2% this year (representative)
Washington:
The coronavirus pandemic has inflicted a “rapid and massive shock” that has caused the widest collapse of the world economy since 1870 despite unprecedented government support, the World Bank announced on Monday.
The global economy is expected to contract by 5.2% this year – the worst recession in 80 years – but the number of countries suffering from economic losses means that the magnitude of the slowdown is worse than any recession in 150 years, said the World Bank in its latest report from Global Economic Prospects.
“This is a deeply troubling prospect, with the crisis likely to leave lasting scars and pose major global challenges,” said Ceyla Pazarbasioglu, vice president of the World Bank Group for Fair Growth, Finance and institutions.
The depth of the crisis will plunge 70 to 100 million people into extreme poverty – worse than the previous estimate of 60 million, she told reporters.
And while the Washington-based development lender projects a rebound for 2021, there is a risk that a second wave of epidemics could jeopardize the recovery and turn the economic crisis into a financial crisis that will see a “wave of defaults”.
Economists are struggling to measure the impact of the crisis they have likened to a global natural disaster, but the magnitude of the impact in so many sectors and countries has made this difficult.
In the worst case, the global recession could mean an eight percent contraction, according to the report.
But Pazarbasioglu warned: “Given this uncertainty, further downgrades in the outlook are very likely.”
Meanwhile, a group of American economists who are the arbiters of the start and end of a recession said on Monday that the United States had entered a phase of slowdown in February, ending 128 months of uninterrupted growth. , the longest streak in history.
Recessions are generally defined by several months of decline in economic activity.
But the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), a nonprofit and non-partisan research organization, called the current state of the world‘s largest economy “unprecedented” due to the seriousness from the decline in employment and output, although it could turn out to be shorter than other recessions.
China continues to grow, barely
China is almost the only one to experience modest growth this year. However, the World Bank has warned that the magnitude of the slowdown in the world‘s second largest economy will hamper prospects for recovery in developing countries, particularly commodity exporters.
While China will only see its GDP increase by 1%, according to the World Bank, the rest of the forecasts are bleak: -6.1% in the United States, -9.1% in the euro zone, -6.1 % in Japan, -8% in Brazil, -7.5% in Mexico and India – 3.2 percent.
And things could get worse, which means the forecast will be revised even lower, the bank warned.
Although dramatic, current forecasts are far from the Great Depression, which saw a 14.5% global contraction from 1930 to 1932, while the post-war slowdown in 1945-1946 was 13.8%, according to the World Bank.
But due to the pandemic, there are “exceptionally high” risks to the outlook, especially if the disease persists and authorities have to re-impose restrictions – which could make the recession as bad as 8%.
“Business disruptions would weaken companies’ ability to stay in business and pay down debt,” the report warned.
This, in turn, could raise interest rates for higher risk borrowers. “With debt levels already at historic highs, this could lead to cascading defaults and financial crises in many economies,” he added.
But even if the 4.2% global recovery predicted for 2021 materializes, “in many countries, the deep recessions triggered by COVID-19 will likely weigh on potential production for years to come.”
(With the exception of the title, this story was not edited by GalacticGaming staff and is published from a syndicated feed.)
