The swift and massive shock of the coronavirus pandemic and shutdown measures to contain it have plunged the global economy into a severe contraction, the World Bank said, adding that the global economy was expected to shrink by 5.2% this year.
“That would represent the deepest recession since the Second World War, with the largest fraction of economies experiencing declines in per capita output since 1870,” the World Bank said in its June 2020 Global Economic Prospects.
Economic activity among advanced economies is anticipated to shrink 7% in 2020 as domestic demand and supply, trade, and finance have been severely disrupted, it said.
Emerging market and developing economies (EMDEs) are expected to shrink by 2.5% this year, their first contraction as a group in at least sixty years. Per capita incomes are expected to decline by 3.6%, which will tip millions of people into extreme poverty this year.
The blow is hitting hardest in countries where the pandemic has been the most severe and where there is heavy reliance on global trade, tourism, commodity exports, and external financing, the bank said, adding that while the magnitude of disruption will vary from region to region, all EMDEs have vulnerabilities that are magnified by external shocks.
“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” said World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu.
“Our first order of business is to address the global health and economic emergency. Beyond that, the global community must unite to find ways to rebuild as robust a recovery as possible to prevent more people from falling into poverty and unemployment.”
Under the baseline forecast—which assumes that the pandemic recedes sufficiently to allow the lifting of domestic mitigation measures by mid-year in advanced economies and a bit later in EMDEs, that adverse global spillovers ease during the second half of the year, and that dislocations in financial markets are not long-lasting — global growth is forecast to rebound to 4.2% in 2021, as advanced economies grow 3.9% and EMDEs bounce back by 4.6%.
However, the outlook is highly uncertain and downside risks are predominant, including the possibility of a more protracted pandemic, financial upheaval, and retreat from global trade and supply linkages, the Banks said, adding that a downside scenario could lead the global economy to shrink by as much as 8% this year, followed by a sluggish recovery in 2021 of just over 1%, with output in EMDEs contracting by almost 5% this year.
The U.S. economy is forecast to contract 6.1% this year, reflecting the disruptions associated with pandemic-control measures. Euro Area output is expected to shrink 9.1% in 2020 as widespread outbreaks took a heavy toll on activity. Japan’s economy is anticipated to shrink 6.1% as preventive measures have slowed economic activity.
China is expected to slow to 1% this year and rebound to 6.9 percent in
2021 as activity gradually normalises there and as lockdowns are lifted around the world.
“The outlook is predicated on China and other major countries in the region avoiding a second wave of outbreaks. The assumption is that the severe slowdown in China in the first quarter and the rest of the region in the first half will be followed by a gradual and sustained recovery,” the Bank said.