WASHINGTON – The global economy will contract the most since World War II this year due to the COVID-19 pandemic, reducing incomes and sending millions of people into poverty in emerging and developing nations, the World Bank said.
Global gross domestic product will probably shrink 5.2 percent in 2020, the Washington-based development organization said in its semiannual Global Economic Prospects report Monday.
That compares with a January projection for a 2.5 percent expansion, and would be the fourth-deepest recession of the past 150 years after 1914, 1930 to 1932 and 1945 to 1946, the World Bank said.
Per capita output will contract in more than 90 percent of countries, the largest percentage since 1870. The economy will rebound in 2021, growing 4.2 percent, according to the report.
"This is the first recession since 1870 triggered solely by a pandemic, and it continues to manifest itself,” Ceyla Pazarbasioglu, the World Bank’s vice president of equitable growth, finance and institutions, told reporters by phone. "Given this uncertainty, further downgrades to the outlook are very likely.”
The decline in per capita income may push 70 million to 100 million people into extreme poverty, she said.
Advanced economies will shrink 7 percent, while emerging and developing economies will shrink 2.5 percent, their worst performance in data that starts in 1960, the report said.
Those with limited health care capacity, deeply integrated global value chains, heavy dependence on foreign financing and extensive reliance on international trade, commodity exports and tourism are likely to be the hardest hit.
The World Bank report showed contractions in 2020 of 6.1 percent for the United States and Japan, a 9.1 percent contraction for the eurozone, 8.0 percent for Brazil and 3.2 percent for India. China is expected to maintain growth of 1.0 percent in 2020, down from a January forecast of 6.0 percent.
World Bank officials said their baseline scenario assumes that social distancing lockdowns and temporary business closures begin to ease at the end of June.
But the report shows a downside scenario in which lockdowns are extended by three months this year. Should that occur, the 2020 contractions would deepen to 8 percent to 10 percent in advanced economies and 5 percent in emerging markets, with far more permanent business closures, a bigger collapse in global trade flows, layoffs and deep cuts in household spending.
"The global recession would be deeper if bringing the pandemic under control took longer than expected, or if financial stress triggered cascading defaults,” the World Bank said.
Most central banks have cut interest rates to about or below zero to buffer the effect of the novel coronavirus, with the Federal Reserve starting an unprecedented range of emergency programs that provide as much as $2.3 trillion (¥249 trillion) in loans. Fiscal stimulus packages have varied. The U.S. is providing about 15 percent of GDP in support and Germany about 4.7 percent, while Japan’s program is worth about 42 percent of GDP, according to Bloomberg Economics.
The International Monetary Fund will update its World Economic Outlook on June 24. In April, the fund forecast a 3 percent contraction for this year, though chief economist Gita Gopinath has since said that the outlook has worsened.
The methodologies are different because IMF aggregate forecasts are based on purchasing-power parity, which gives more weight to developing economies, while the World Bank uses market exchange rates.
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