The coronavirus pandemic is likely to trigger the worst recession since the Great Depression — dwarfing the fallout from the financial crisis a dozen years ago, the International Monetary Fund warned Tuesday.
It predicts the global economy will shrink 3% this year, before rebounding in 2021. The expected contraction in the U.S. will be almost twice as sharp, the IMF said, with the gross domestic product falling by 5.9% in 2020.
Also hard hit will be Latin America where the IMF predicts the region’s economies will shrink by 5.2 percent. Among the nations predicted to suffer the most are Mexico and Ecuador, whose economies will contract by 6.6 percent and 6.3 percent respectively, due to the “isolation, blockade and general closings required to stop the spread.” Not surprisingly, Venezuela will be worst economic performer, suffering a 15 percent contraction.
Ecuador will suffer a double-blow, according to IMF, because of its dependence on oil revenue as the price per barrel hovers in the low $20 range. In recent years, oil has funded about 30 percent of the national budget.
“The Covid-19 pandemic is inflicting high and rising human costs worldwide,” IMF forecasters wrote in their global outlook, titled The Great Lockdown.
“Protecting lives and allowing health care systems to cope have required isolation, lockdowns, and widespread closures to slow the spread of the virus. The health crisis is therefore having a severe impact on economic activity,” the IMF added.
Economists conceded that their forecast is clouded by “extreme uncertainty,” with much depending on the path of the pandemic as well as global efforts to contain it.
The outlook was presented at the start of what would ordinarily be a week of in-person meetings in Washington. This year, the IMF is conducting its global get-together online, in deference to the pandemic.
As public officials in the U.S. begin to debate steps toward reopening shuttered parts of the economy, the IMF urged caution.
“Necessary measures to reduce contagion and protect lives will take a short-term toll on economic activity but should also be seen as an important investment in long-term human and economic health,” authors of the outlook wrote.
Forecasters said while a sharp recession is “unavoidable,” policymakers can take steps to cushion the pain. In the U.S., Congress has authorized relief payments to both businesses and individuals while the Federal Reserve has promised to provide a financial lifeline with trillions of dollars in emergency lending.
The IMF stressed the importance of international cooperation to confront the pandemic, including worldwide efforts to develop both treatments and a vaccine.
“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 IMF said in its outlook.
Credit, National Public Radio