COVID-19 (coronavirus) plunges world economy into worst recession since World War II
Per capita income will decrease in all regions
The sudden and widespread impact of the coronavirus pandemic and the measures to suspend activities that were adopted to contain it have caused a drastic contraction in the world economy, which, according to World Bank forecasts, will decrease by 5.2% this year. year 1]. According to the June 2020 edition of the Bank’s World Economic Outlook report, it would be the worst recession since World War II, and the first time since 1870 that so many economies would experience a decline in output per capita.
Following severe distortions to domestic supply and demand, trade and finance, economic activity in advanced economies is forecast to contract by 7% in 2020. Emerging markets and developing economies are expected to ( MEED) contract 2.5% this year, their first contraction as a group in at least 60 years. The projected decline in per capita income of 3.6% will push millions of people into extreme poverty this year.
The effects are being particularly profound in the countries most affected by the pandemic and in those that depend heavily on international trade, tourism, commodity exports, and external financing. While the magnitude of the shocks will vary by region, all MEEDs report vulnerabilities that are compounded by external shocks. Likewise, the suspension of classes and the difficulties of accessing primary health care services are likely to have long-term repercussions on the development of human capital.
“The prospects give a lot to think about, as the crisis is likely to leave scars that are difficult to erase and pose complex global challenges,” said Ceyla Pazarbasioglu, vice president of Equitable Growth, Finance and Institutions at the World Bank Group. “Our first priority is to address the global health and economic emergency. Beyond that, the world community must come together to achieve the strongest recovery possible and prevent more people from falling into poverty and unemployment. ”
According to the baseline forecasts – according to which the remission of the pandemic will allow the national mitigation measures to be lifted mid-year in the advanced economies and a little later in the MEEDs, the negative repercussions worldwide will lose intensity during the In the second half of the year and the disturbances to the financial markets will not last over time— world growth would pick up 4.2% in 2021, namely 3.9% for advanced economies and 4.6% for the MEEDs. However, the outlook is highly uncertain and there are risks that the situation will worsen, for example, the possibility that the pandemic will last longer, that there will be financial upheavals or that a drop in international trade and supply relationships. In that scenario, the world economy could contract as much as 8% this year, to recover just over 1% in 2021, while the MEED product would decrease almost 5% this year.
The United States economy is forecast to contract 6.1% this year as a result of shocks linked to measures to control the pandemic. As for the euro area, it is estimated that the product will fall 9.1% in 2020 due to the serious repercussions that the general outbreaks had on activity. In addition, a 6.1% retraction is expected in the Japanese economy, whose economic activity has slowed down as a result of prevention measures.
“The recession caused by COVID-19 is unique in several respects, and is likely to be the deepest for advanced economies since World War II and the first contraction in output in emerging and developing economies in at least the past few years. six decades, ”said Ayhan Kose, director of the World Bank’s Outlook Group. “There are no records of downward corrections as sudden and drastic in global growth forecasts as those seen today. If the past serves as a benchmark, the forecasts could worsen further, implying that policy makers must prepare for the possibility of having to take additional measures to support the activity. ”
The key sections of this unprecedented economic upheaval are addressed in the analytical sections of this edition of the Global Economic Outlook:
How deep will the recession caused by COVID-19 be? An investigation of 183 economies during the period between 1870 and 2021 offers a historical perspective on world recessions.
Hypothesis of Possible Growth Results: Short-term growth projections are subject to an unusual degree of uncertainty; alternative hypotheses are examined.
How does informality intensify the effects of the pandemic? The health and economic consequences of the pandemic are likely to be more profound in countries where informality is widespread.
Prospects for low-income countries: The pandemic is wreaking havoc on the economic and human planes in the poorest countries.
Regional macroeconomic consequences: Each region has unique vulnerabilities to the pandemic and the economic slowdown it produces.
Effects on global value chains: Disruptions to global value chains can exacerbate the effects of the pandemic on trade, production and financial markets.
Long-term consequences of the pandemic: Deep recessions, in general, have detrimental and long-term effects on investment, they are detrimental to human capital due to unemployment that cause and cause a withdrawal of international trade and supply relations. (Posted June 2).
The consequences of falling oil prices: The drop in oil prices generated by the unprecedented decline in demand is unlikely to moderate the effects of the pandemic, although it could be positive during the recovery. (Posted June 2).
The pandemic highlights the pressing need to promote policy measures in the health and economic fields, including international cooperation initiatives, in order to mitigate its effects, protect vulnerable populations and strengthen the capacity of countries to prevent similar situations in the future and face them. In view of their particular vulnerability, it is essential that MEEDs strengthen their public health systems, that they face the challenges of informality and gaps in safety nets, and that they promote reforms that promote firm and sustainable growth after the crisis.
MEEDs that have fiscal maneuvering capacity and that can access affordable financing conditions could consider using additional incentives if the effects of the pandemic continue over time. Such a strategy should be accompanied by measures that credibly restore medium-term fiscal sustainability, including those aimed at strengthening fiscal frameworks, increasing the mobilization of internal revenue and spending efficiency, and improving fiscal and fiscal transparency. debt. Transparency of all financial commitments, analogous debt instruments, and government investments is a key factor in creating an enabling environment for investment; substantial progress could be made in this regard this year.
Download the June 2020 World Economic Outlook Report here (i).
East Asia and the Pacific: The region is projected to grow just 0.5% in 2020, the lowest rate since 1967 and a reflection of the pandemic-related disruptions. For more information, see regional overview (i).
Europe and Central Asia: It is estimated that the region’s economy will contract 4.7% and that practically all countries will go into recession. For more information, see regional overview (i).
Latin America and the Caribbean: The shocks caused by the pandemic will cause economic activity to drop 7.2% in 2020. For more information, see the regional overview.
Middle East and North Africa: Economic activity in the Middle East and North Africa is forecast to contract 4.2% in the wake of the pandemic and its effects on the oil market. For more information, see regional overview (i).
South Asia: Economic activity in the region is expected to contract 2.7% in 2020 as a result of the negative effects of pandemic mitigation measures on consumption and service activity and uncertainty about the course of the disease, which will discourage private investment. For more information, see regional overview (i).
Sub-Saharan Africa: Economic activity in the region is on the way to contracting 2.8% in 2020, the deepest slowdown on record. For more information, see regional overview (i).
World Bank Group response to COVID-19
The World Bank Group, one of the main sources of financing and knowledge for developing countries, is taking rapid and wide-ranging measures to help those countries strengthen their response to the pandemic. To this end, it supports public health interventions, works to guarantee the sum