With governments around the world trying to control SARS COV-2 by imposing lockdowns on its citizens and restricting both domestic and international travel, the world is seeing the largest economic shock for decades. Even though governments have been supporting their economies with fiscal (taxation and spending) and monetary (quantity of money and credit) support the pandemic is expected to leave long lasting scars.
Most countries are expected to be in recession in 2020 and in its June report the World Bank forecasted a 5.2% contraction in global Gross Domestic Product (GDP) in 2020 with advanced economies forecasted to shrink by 7%.
Over the longer term, these recessions triggered by the pandemic are expected to leave lasting scars through lower investment, an erosion of human capital through unemployment and lost schooling, and fragmentation of global trade and disruption in supply. Every region will have growth downgrades this year and these downturns are expected to reverse years of progress toward development goals and tip tens of millions of people back into extreme poverty.
Emerging market and developing economies will be affected by pressure on weak health care systems, loss of trade and tourism, mounting debt and exporters of energy or industrial commodities will be particularly hard hit.
A particularly concerning aspect of the outlook is the humanitarian and economic toll the global recession will take on economies with extensive informal sectors that make up an estimated one-third of the GDP and about 70% of total employment in emerging market and developing economies. Many emerging and developing economies were already experiencing weaker growth before this crisis; the shock of COVID-19 now makes the challenges these economies face even harder.
Global coordination and cooperation of the measures needed to slow the spread of the pandemic, and of the economic actions needed to alleviate the economic damage, including international support will provide the greatest chance of achieving public health goals and enabling a robust global recovery.