IMF: world economy to shrink 3% in 2020 in worst setback since Great Depression

Gita Gopinath, Chief Economist of the IMF

The Great Depression, the Great Recession, and now, the Great Lockdown. The International Monetary Fund (IMF) expects world economy to shrink 3% this year as a consequence of the containment measures taken to control the coronavirus pandemic.

This makes what the IMF has called the Great Lockdown, the worst recession since the Great Depression, and far worse than the Global Financial Crisis.

For 2021, the IMF expects global economy to grow 5.8%. However, “this recovery is only partial as the level of economic activity is projected to remain below the level we had projected for 2021, before the virus hit,” says Gita Gopinath, Chief Economist of the IMF.

IMF expects cumulative loss to global GDP to be around 9 trillion dollars

The cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars, greater than the economies of Japan and Germany, combined.

The IMF has made this outlook assuming the pandemic will fade 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.

However, Gopinath says that “the pandemic may not recede in the second half of this year, leading to longer durations of containment, worsening financial conditions, and further breakdowns of global supply chains.” In such cases, global GDP would fall even further: an additional 3% in 2020 if the pandemic is more protracted this year, while, if the pandemic continues into 2021, it may fall next year by an additional 8% compared to IMF’s baseline scenario.