A major crisis. We can only get through it by working together
In light of the COVID-19 pandemic, the outlook for the world economy is uncertain, and could deliver a killer blow. Therefore, we need to act quickly and, according to the International Monetary Fund, with international collaboration and cooperation. Gita Gopinath, Director of the International Monetary Fund Research Department, summarises the general picture (https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/): “The world has changed dramatically in the three months since our last update of the World Economic Outlook in January. A rare disaster, the coronavirus pandemic, has resulted in a tragically large number of human lives being lost” in a world under lockdown.
April’s World Economic Outlook predicts that global growth in 2020 will fall by 3%. “This is a downgrade of 6.3 percentage points from January 2020, a major revision over a very short period. This makes the Great Lockdown”, the IMF writes, “the worst recession since the Great Depression, and far worse than the Global Financial Crisis.” Assuming the pandemic fades in the second half of 2020 and that policy actions taken around the world are effective in preventing widespread firm bankruptcies, extended job losses, and system-wide financial strains, the IMF projects that global growth in 2021 will rebound to 5.8 percent.
This optimistic recovery in 2021 is, however, only partial, because, according to the IMF, the level of economic activity is projected to remain below the level projected by the Fund for 2021, before the virus hit: “The cumulative loss of global GDP over 2020 and 2021 could be around 9 trillion dollars, greater than the economies of Japan and Germany, combined.” According to the IMF, for the first time since the Great Depression, advanced economies, emerging markets and developing economies alike are in recession, with growth in advanced economies projected at -6.1 percent. Income per capita is projected to shrink for over 170 countries, even if advanced economies, emerging markets and developing economies are expected to partially recover in 2021.
According to the IMF, it will not be easy, so policymakers must plan for recovery with policies that, as we come out of containment measures, should quickly support demand, incentivise firm hiring, and repair balance sheets in the private and public sector to aid the recovery. It may be necessary – warns the organisation created in Bretton Woods – to continue the moratoria on debt repayments, and debt restructuring may need to be continued during the recovery phase. Finally, the Fund warns, “Multilateral cooperation is vital to the health of the global recovery.” A concept that was reiterated by Kristalina Georgieva, Managing Director of the IMF, at a joint press conference with WHO Director-General Tedros Adhanom Ghebreyesus (https://www.imf.org/en/News/Articles/2020/04/03/sp040320-opening-remarks-for-joint-imf-who-press-conference).
“That is what brings the WHO and the IMF so closely together: the WHO to help protect the health of people; and the IMF to help protect the health of the global economy. We must”, Georgieva concluded, “work together. Our joint appeal to policymakers everywhere in the world is to recognise that protecting public health and protecting the economy and putting people back to work go hand in hand. We need to do both.”