On Tuesday, International Monetary Fund noted that the world economy is heading towards a more significant contraction than what had previously been estimated in April. It did so, noting that the ongoing crisis is nothing like the world has ever seen before.
Just a few months ago in April, during the period that European countries were having their first weeks of lockdown, the IMF had forecasted a contraction by 3% in 2020, regarding it as the worst financial crisis since 1930’s Great Depression. Even with lockdowns being partially eased and a number of global economies beginning to reopen, they warned that there could be an even worse decline.
Gita Gopinath, the IMF’s chief economist, in a blog post detailed that “For the first time since the Great Depression, both advanced and emerging market economies will be in recession in 2020. The forthcoming June World Economic Outlook Update is likely to show negative growth rates even worse than previously estimated.”
Today, the total number of confirmed infections have surpassed 8 million across the world with the highest cases coming from the United States, Brazil, Russia, India and the U.K. according to Johns Hopkins University data. Needless to say, the process of lifting lockdowns has been sluggish.
The worst hit sectors have been service-based. On the flip side, the manufacturing industry hasn’t suffered as many hits – a change from previous crises where constrained investment hit the manufacturing space the hardest.
To mitigate the impending crisis quicker, Gopinath said, “It is possible that with pent-up consumer demand there will be a quicker rebound, unlike after previous crises.”
“With few exceptions, the rise in sovereign spreads and the depreciation of emerging market currencies are smaller than what we saw during the global financial crisis. This is notable considering the larger scale of the shock to emerging markets during the Great Lockdown,” he added.