Page 28 - Issue 9

World

Global GDP to contract

by 5.2 percent in 2020 Stocks deep in face of COVID-19

s the health and human toll America by 7.2%. These downturns are bankruptcies and defaults could result
Agrows, the economic damage is expected to reverse years of progress in financial crises in many countries.
already evident and represents the toward development goals and tip tens Under this downside scenario, global
largest economic shock the world has of millions of people back into extreme growth could shrink by almost 8% in
experienced in decades. poverty. 2020.
According to the World Bank, in its Emerging market and developing A particularly concerning aspect of
June 2020, Global Economic Prospects, economies will be buffeted by economic the outlook is the humanitarian and
it describes both the immediate and headwinds from multiple quarters: economic toll the global recession
near-term outlook for the impact of the pressure on weak health care systems, will take on economies with extensive
pandemic and the long-term damage it loss of trade and tourism, dwindling informal sectors that make up an
has dealt to prospects for growth. The remittances, subdued capital flows, estimated one-third of the GDP and
baseline forecast envisions a 5.2 percent and tight financial conditions amid about 70% of total employment in
contraction in global GDP in 2020, mounting debt. emerging market and developing
using market exchange rate weights— Exporters of energy or industrial economies. Policymakers must consider
the deepest global recession in decades, commodities will be particularly hard innovative measures to deliver income
despite the extraordinary efforts of hit. Demand for metals and transport- support to these workers and credit
governments to counter the downturn related commodities such as rubber and support to these businesses.
with fiscal and monetary policy support. The report looks beyond the near-
platinum used for vehicle parts has also term outlook to what may be lingering
Over the longer horizon, the deep tumbled. While agriculture markets are repercussions of the deep global
recessions triggered by the pandemic are well supplied globally, trade restrictions recession: setbacks to potential output-
expected to leave lasting scars through and supply chain disruptions could yet the level of output an economy can achieve
lower investment, an erosion of human raise food security issues in some places. at full capacity and full employment-
capital through lost work and schooling, and labor productivity. Efforts to
and fragmentation of global trade and According to the report, even this bleak contain COVID-19 in emerging and
supply linkages. outlook is subject to great uncertainty
and significant downside risks. In developing economies, including low-
For emerging market and developing the report, the forecast assumes that income economies with limited health
countries, many of which face daunting the pandemic recedes in such a way care capacity, could precipitate deeper
vulnerabilities, it is critical to strengthen that domestic mitigation measures and longer recessions-exacerbating a
public health systems, address the can be lifted by mid-year in advanced multi-decade trend of slowing potential
challenges posed by informality, and economies and later in developing growth and productivity growth.
implement reforms that will support countries, that adverse global spillovers Another important feature of the current
strong and sustainable growth once the ease during the second half of 2020, landscape, according in the report, is the
health crisis abates. and that widespread financial crises are historic collapse in oil demand and oil
In the report, every region is subject to avoided. This scenario envision global prices. Low oil prices are likely to provide,
at best, temporary initial support to
substantial growth downgrades. East growth reviving, albeit modestly, to 4.2% growth once restrictions to economic
Asia and the Pacific will grow by a scant in 2021. activity are lifted. However, even after
0.5%. South Asia will contract by 2.7%, However, this view may be optimistic. demand recovers, adverse impacts on
Sub-Saharan Africa by 2.8%, Middle Businesses might find it hard to service energy exporters may outweigh any
East and North Africa by 4.2%, Europe debt, heightened risk aversion could benefits to activity in energy importers,
and Central Asia by 4.7%, and Latin lead to climbing borrowing costs, and the report says.

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