The coronavirus pandemic sweeping the world will turn global economic growth “sharply negative” in 2020, triggering the worst fallout since the 1930s Great Depression, with only a partial recovery seen in 2021, the International Monetary Fund (IMF) Managing Director Kristalina Georgieva said.
Georgieva painted a far bleaker picture of the social and economic impact of the new coronavirus than even a few weeks ago, noting governments had already undertaken fiscal stimulus measures of $8 trillion, but more would likely be needed.
There is “tremendous uncertainty around the outlook” and the duration of the pandemic, Georgieva said.
She said the crisis would hit emerging markets and developing countries hardest of all, which would then need hundreds of billions of dollars in foreign aid.
“The bleak outlook applies to advanced and developing economies alike. This crisis knows no boundaries. Everybody hurts,” Georgieva said.
In January, the IMF projected global growth of 3.3 percent this year and 3.4 percent in 2021.
But that was a different world – there was no pandemic.
The pandemic will turn global economic growth “sharply negative” this year, she has warned.
“Just three months ago, we expected positive per capita income growth in over 160 of our member countries in 2020,” she said on Thursday in remarks prepared for delivery ahead of next week’s IMF and World Bank Spring Meetings.
“Today, that number has been turned on its head: we now project that over 170 countries will experience negative per capita income growth this year.”
If the pandemic faded in the second half of the year, the IMF expected a partial recovery in 2021, Georgieva said, but she warned the situation could also get worse.
“I stress there is tremendous uncertainty about the outlook: it could get worse depending on many variable factors, including the duration of the pandemic,” she said.
The IMF with 189 member countries will release its detailed World Economic Outlook forecasts on Tuesday.
Georgieva said the pandemic was hitting both rich and poor countries, but many in Africa, Asia and Latin America were at higher risk because they had weaker health systems. They were also unable to implement social distancing in their densely populated cities and poverty-stricken slums.
Investors removed $100 billion
She said investors have already removed some $100 billion in capital from those economies, more than three times the outflow seen during the same period of the global financial crisis.
With commodity prices down sharply, emerging market and developing countries would need trillions of dollars to fight the pandemic and rescue their economies, she said.
“They urgently need help,” she said, estimating hundreds of billions of dollars would have to be pumped in from outside sources since those governments could only cover a portion of the costs on their own, and many already had high debts.
To ensure a future recovery, Georgieva called for continued efforts to contain the virus and support health systems, while averting export controls that could slow the flow of vital medical equipment and food.
“The actions we take now will determine the speed and strength of our recovery,” she said.
It was critical to provide affected people and companies with “large, timely and targeted” measures such as wage subsidies, extended unemployment benefits and adjusted loan terms, while reducing stress to the financial system.
“Those with greater resources and policy space will need to do more; others, with limited resources will need more support,” she said.
The IMF was created for times like these, and stood ready to deploy its $1 trillion in lending capacity, Georgieva said.
The Fund’s executive board had approved doubling its emergency funding to $100 billion to meet the requests of over 90 countries, and staff were racing to process those requests.
The IMF was also looking at ways to provide additional liquidity support, including through creation of a new short-term liquidity line, and solutions that would allow lending even to countries whose debt was unsustainable, she said.
The IMF was also looking to increase its Catastrophe Relief and Containment Fund, which provides grants for the poorest countries to cover IMF debt service payments, to $1.4 billion from around $200 million, she said.
To further aid the poorest economies, the Fund and the World Bank were urging creditors such as China and other countries to temporarily stop collecting debt payments on their bilateral loans.
The IMF chief said: “Lifelines for households and businesses are imperative” to “avoid a scarring of the economy that would make the recovery so much more difficult.”
U.S. officials scramble
U.S. officials have scrambled to apply a tourniquet to stem the bleeding of jobs in the world’s largest economy and keep the financial system from freezing up.
The U.S. Federal Reserve rolled out another series of lending programs Thursday totaling $2.3 trillion to help small and medium businesses as well as state and local governments facing cash shortages.
The U.S. is moving “with alarming speed” from unemployment near a 50-year low, to a “very high” rate, U.S. Federal Reserve (Fed) chair Jerome Powell said in a speech Thursday.
Like Georgieva, Powell indicated the U.S. government will have to provide more direct support, since the Fed is limited to lending to solvent entities.
“All of us are affected, but the burdens are falling most heavily on those least able to carry them,” Powell said.
He also tried to offer some reassurance, saying the U.S. economic rebound could be “robust.”
The IMF chief’s comments came as the U.S. reported that the number of Americans seeking unemployment benefits had surged for the third week by 6.6 million, bringing the total over that period to more than 16 million Americans.
The U.S. economy has purged 17 million jobs since mid-March, and economists projecting a double-digit jobless rate this month.
On Thursday, following marathon talks, EU leaders agreed a €500bn (£440bn; $546bn) economic support package for members of the bloc hit hardest by the lockdown measures.
The European Commission earlier said it aimed to co-ordinate a possible “roadmap” to move away from the restrictive measures.
Earlier this week, the International Labour Organization (ILO) warned that the pandemic posed “the most severe crisis” since World War II.
It said the outbreak was expected to wipe out 6.7% of working hours across the world during the second quarter of 2020 – the equivalent of 195 million full-time workers losing their jobs.
Earlier this week, a UN study said 81% of the world’s workforce of 3.3 billion people had had their place of work fully or partly closed because of the outbreak.
Last month, the Organisation for Economic Co-operation and Development (OECD) warned that the global economy would take years to recover.
Secretary general Angel Gurría said that economies were suffering a bigger shock than after the 9/11 terror attacks of 2001 or the 2008 financial crisis.
Oxfam, UK-based charity organization, warned that the economic fallout from the spread of Covid-19 could force more than half a billion more people into poverty.
By the time the pandemic is over, the charity said, half of the world’s population of 7.8 billion people could be living in poverty.
The World Bank said Thursday the pandemic might cause the first recession in Africa in 25 years.
Researchers at the Institute for International Finance (IIF), a global banking association, expect a 2.8 percent plunge in global GDP, compared to a decline of 2.1 percent in 2009 during the global financial crisis.