IMF warns of $12 trillion hit to economy from virus

Andy Jalil

The coronavirus pandemic will trigger the biggest hit to global growth since the Great Depression and cost the global economy an estimated $12 trillion, the International Monetary Fund (IMF) said. The virus is causing wider and deeper damage to the global economy than first thought, the organisation said as it slashed its global output forecasts further.

The IMF now expects global output to shrink 4.9 per cent in 2020. In April, the organisation had predicted a three per cent contraction. The UK economy is now on course to shrink 10.2 per cent in 2020, the Fund said. In April, it had forecast a contraction of 6.5 per cent for the year.

IMF chief economist Gita Gopinath said: “The COVID-19 pandemic pushed economies into a Great Lockdown, which helped contain the virus and save lives, but also triggered the worst recession since the Great Depression.”

Gopinath added that while some countries were starting to recover from the economic hit as lockdowns were eased, “in the absence of a medical solution, the strength of the recovery is highly uncertain and the impact on sectors and countries uneven”.

She said that the Fund’s downgrades on its April forecasts “reflects worse than anticipated outcomes in the first half of this year, an expectation of more persistent social distancing into the second half of this year, and damage to supply potential”.

Describing the economic downturn triggered by COVID-19 as “a crisis like no other”, the Fund revised down growth projections for every G7 industrial nation as well all leading developing nations. The IMF said it would take two years for global output to return to the levels seen at the end of 2019.

Recovery in 2021 also will be weaker, the IMF said, updating its global growth forecast at 5.4 per cent for the year compared to 5.8 per cent in its April forecast. It said, however, that a major new outbreak in 2021 could shrink the year’s growth to a barely perceptible 0.5 per cent.

The IMF said that more policy actions from governments and central banks would be needed to support jobs and businesses to limit further damage and set the stage for recovery.

Global stocks had plunged further into the red last week as fears of a second wave of the pandemic mounted and investors worried about a slowdown in the global economic recovery.

The FTSE 100 closed down 3.11 per cent as growing numbers of new infections compounded fears over a second wave of cases, sending jitters through equity markets. The FTSE 100’s losses follow some concerning coronavirus case figures from the US.

UK health experts called for an urgent review to prepare the public for a second wave of Covid-19 infections. In an open letter, the experts pressed the government to act in order to prevent more coronavirus deaths and economic damage if a second wave occurs during winter.