The COVID-19 pandemic unravels the world economy
As nearly 90 per cent of the global economy came under some form of lockdown in the second quarter, the world faces the grim prospect of the most severe recession since the Great Depression of the 1930s. The world output is projected to contract sharply by 3.2 per cent in 2020 with the pandemic disrupting global supply chains, depressing consumer demand and putting millions out of work. By 2021, cumulative output losses worldwide are expected to $8.5 trillion, wiping out nearly all gains of the previous four years.
The unprecedented crisis portends significant setbacks for sustainable development. Low-skilled low-wage workers – economically marginalized and vulnerable who cannot work remotely – have been disproportionately affected by job losses, which will inevitably exacerbate poverty and income inequalities. An estimated 34.3 million people are projected to fall into extreme poverty this year, with the bulk of this increase occurring in Africa. By 2030, about 130 million more people may live in extreme poverty than previously expected, dealing a huge blow to global efforts to eradicate poverty and hunger.
Facing an unprecedented health, social and economic crisis, governments in developed economies have rolled out massive stimulus packages to minimize the fallout of the pandemic. The picture is different for most developing economies, as they are saddled with chronic fiscal deficits and already high levels of public debt, which constrain their ability to implement much-needed support measures. Notwithstanding bold fiscal measures, the depth and severity of the crisis presage a slow and painful recovery.
Stronger global cooperation is critical to contain the pandemic and extend economic support to countries hardest hit by the crisis. To protect jobs and prevent a further rise in income inequality, governments need to ensure that the monetary and fiscal support measures boost productive capacities, rather than simply driving up asset prices. At the same time, the crisis presents a window of opportunity for “recovering better”. Renewed global solidarity can help strengthen public health systems, build resilience to withstand economic shocks, improve social protection systems, and address the climate change emergency.
The full report is available at bit.ly/wespmidyear
Photo: World Bank / Sambrian Mbaabu