The United Nations forecast Wednesday that the COVID-19 pandemic will shrink the world economy by 3.2% this year, the sharpest contraction since the Great Depression in the 1930s.
The U.N.’s mid-year report said the impact of the coronavirus crisis is expected to slash global economic output by nearly $8.5 trillion over the next two years, wiping out nearly all gains of the last four years.
In January, before COVID-19 became a pandemic, the U.N. had forecast a modest acceleration in growth of 2.5% in 2020.
But U.N. chief economist Elliott Harris told a news conference launching the report that the global economic outlook “has changed drastically” since then, with the pandemic’s death toll climbing toward 300,000.
“With the large-scale restrictions of economic activities and heightened uncertainties, the global economy has come to a virtual standstill in the second quarter of 2020,” he said. “We are now facing the grim reality of a severe recession of a magnitude not seen since the Great Depression.”
According to the report, nearly 90 per cent of the world economy has been under some form of lock-down, disrupting supply chains, depressing consumer demand and putting millions out of work.
The 3.2% contraction in the global economy forecast by the United Nations 5% in developing countries and 0.7% in developing countries is slightly higher than the 3% plunge forecast by the International Monetary Fund in mid-April for 2020.
But in a worst-case scenario, the U.N. said the global economy could shrink by 4.9% in 2020 if a second wave of COVID-19 infections flares up and lockdowns continue into the third quarter of the year.
The IMF forecast that the global economy will rebound in 2021 with 5.8% growth though it said prospects next year are clouded by uncertainty.
The U.N. forecast more modest 3.4% economic growth in 2021 in developed economies and more robust growth of 5.3 percent in developing countries.
But in the worst-case scenario, it said the global economy could contract by a further 0.5% in 2021 if a new wave of infections and lockdowns continues in the third quarter, which ends Sept. 30.
The United Nations World Economic Situation and Prospects report also forecast a 15% contraction in world trade in 2020 as a result of sharply reduced global demand and disruptions in global supply chains.
The U.N.’s Harris said “early efforts to contain the pandemic fell short of market expectations, causing extreme financial market volatility in developing countries and rippling out to the rest of the world.”
“But the pandemic is inflicting damages on the real economy at unprecedented scale and speed,” he said. “As countries put in an all-out effort to contain COVID-19, the world is facing the most severe restrictions on movement and goods in recorded history.”
The report said the pandemic is “exacerbating poverty and inequality,” with an estimated 34.3 million people likely to fall below the extreme poverty line of $1.90 a day in 2020 56% of them in Africa.
It said an additional 130 million people may join the ranks of people living in extreme poverty by 2030, dealing a “huge blow” to global efforts to eradicate extreme poverty and hunger by the end of the decade.
Harris, the U.N. assistant secretary-general for economic development, said the most pessimistic scenario would have an additional 160 million people living in poverty by 2030.
With rising inequality, he warned, “this will only intensify discontent and instability in many parts of the world.”
Harris said governments need to contain the pandemic and minimize its economic impacts.
“The balance between saving lives and saving jobs is as difficult as it is necessary to strike,” he said.
Fiscal stimulus has been uneven across the world, and many developing countries have been unable to introduce sufficiently large packages because of sharp declines in foreign exchange flows from export and tourism revenues, remittances and new borrowing, he said.
“In any event, unless there are major breakthroughs in vaccine development, economic activities will remain significantly limited, and any fiscal measure will be unlikely to be fully effective in stimulating investment and growth,” Harris said.
He said “robust international coordination” is critical to contain the pandemic, minimize its spillover effects, and assist countries hardest hit by COVID-19.
“How quickly and effectively the international community will be able to contain the public health and socio-economic fallout of the pandemic will determine whether and how soon the world can return to pre-crisis levels of economic activities,” Harris said.