The global economy will contract 3 per cent this year due to the new coronavirus and shutdowns aimed at mitigating its spread, the IMF said on Tuesday in its updated World Economic Outlook.
The prediction marks a massive 6.3-per-cent swing off previous estimates from January.
“This makes the great lockdown the worst recession since the Great Depression and far worse than the global financial crisis,” said Gita Gopinath, the IMF chief economist.
The IMF said governments need to “implement substantial targeted fiscal, monetary and financial market measures to support affected households and businesses,” to help cushion the blow.
If the pandemic fades towards the end of the year and containment measures can be lifted, the world economy will expand 5.8 per cent in 2021, the International Monetary Fund said, even as it cautioned that the situation is still unfolding and there is uncertainty.
This recovery, however, would only be partial, and global economic output would still be subdued, compared with previous estimates.
Gopinath said how governments react during the pandemic will shape the recovery, with health measures needed along with support to the economy, even as this will lead to growing debt, although these levels can be reduced again as the economy starts growing.
Once the pandemic passes, Gopinath called for a coordinated stimulus plan among major economies.
Separately, the G7, the grouping of leading industrialized democracies, issued a statement reiterating a vow “to do whatever is necessary” to ensure growth and protect the economy.
Finance ministers and central bank governors from Britain, Canada, France, Germany, Italy, Japan, and the United States said they recognized that an “extraordinary and well-coordinated international response is critical to reducing the depth of the crisis.”
They pledged to work with international organizations, including the IMF.
There is also a scenario in which the pandemic does not fade later this year, in which case the economic collapse would be far more extreme, the IMF warned.
Gopinath warned that the cumulative loss to global GDP over 2020 and 2021 could then be worth around 9 trillion dollars. By comparison, this is greater than the economies of Japan and Germany combined.
However, major developed and emerging economies have already stepped up aid to key sectors and to individuals, which may help prevent worst case scenarios.
The IMF also noted that coordinated action by central banks in recent weeks had helped reduce systemic stress.
The IMF predictions by region said the US would contract by 5.9 per cent this year, while the eurozone would see a drop of 7.5 per cent.
Italy will be hardest hit among major European economies and is expected to fall sharply, by 9 per cent. The country has the highest death toll from coronavirus in Europe.
China would see growth slow to 1.2 per cent, but could shoot up next year to hit a 9.2-per-cent expansion. India would grow at 1.9 per cent this year and 7.4 per cent in 2021.
Trade would also be hit hard. Advanced economies would see imports crash by 11.5 per cent this year, while exports would come in at a negative 12.8 per cent. (dpa)