IMF Predicts World Is Heading to Its Worst Recession Since Great Depression of 1930

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by Bhushan Akolkar · 3 min read
Photo: Depositphotos
Photo: Depositphotos

The clouds of the global economic recession in 2020 get darker day-by-day with the growing COVID-19 cases. The IMF has suggested a 6.3% drop in the economic activity for 2020 saying this could be the worst slowdown since the Great Depression.

Fears of the global economic recession continue to escalate further as the total coronavirus cases move above 2 million. On Tuesday, the International Monetary Fund (IMF) said that the world is heading for its biggest recession this year since the Great Depression of 1930.

As per IMF prediction, the global economy will contract by 3% in 2020. This is in stark contrast to IMF’s January forecast that the global economy will expand by 3.3%. Of course, the change comes after the COVID-19 pandemic has posed severe concerns by shrinking the economic activity. With this update on the World Economic Outlook (WEO), the report reads:

“The growth forecast is marked down by more than 6 percentage points relative to the October 2019 WEO and January 2020 WEO Update projections—an extraordinary revision over such a short period of time”.

Things are absolutely unclear at this stage as to when the pandemic will end. This has left economists worrying about an unclear path ahead. Speaking to CNBC, IMF chief economist, Gita Gopinath said:

“It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago. “This is a crisis where the economic shock is something that is not exactly controlled by economic policy”.

Well, the comparisons have gone to the extent of comparing the Great Depression with the Great lockdown. While comparing this period with the Great Depression, the IMF chief economist said:

“we are (now) better off on the health front. On the economic front, I think it makes a big difference that there are lenders of last resort, that monetary policy is proactively able to come in and ensure enough liquidity in markets, that fiscal policy is able to play a major role in supporting firms and households.”

Partial Recovery Expected in 2021

The chief economist said that the global economy will make a “partial recovery” in 2021. However, this is only if the pandemic situation eases out in the second half of 2020. Calling it a “crisis like no other”, Gopinath said that this situation is unprecedented. But she is also in favor of necessary steps quarantines, lockdowns and social distancing which are critical to reducing the virus spread. In its reports, the WEO wrote:

“Countries urgently need to work together to slow the spread of the virus and to develop a vaccine and therapies to counter the disease. Until such medical interventions become available, no country is safe from the pandemic (including a recurrence after the initial wave subsides) as long as transmission occurs elsewhere.”

On Monday, WHO said that nearly 70 coronavirus vaccine candidates are under evaluation. Besides, clinical and human trials have also started at this stage. However, one cannot accept an absolute solution in a short time as it will take months for the vaccine to come in the market. Thus, policymakers are requested to take measures to support affected businesses and households.

The World Trade Organization predicts that global trade this year will contract anywhere between 13 to 32%. The WEO has also asked policymakers to implement targeted monetary, fiscal, and financial measures.

“Broad-based fiscal stimulus can preempt a steeper decline in confidence, lift aggregate demand, and avert an even deeper downturn. But it would most likely be more effective once the outbreak fades and people are able to move about freely,” the WEO explains.

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Bhushan Akolkar
Author: Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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