NIESR Press Release: Policymakers must coordinate route to global recovery
National Institute Economic Review No. 253 August 2020
Policymakers must coordinate route to global recovery
FOR IMMEDIATE RELEASE
- The Covid-19 pandemic and the effects of the measures taken to protect lives continue to dominate the short-term global economic outlook.
- In still highly uncertain times, there are widespread falls in GDP as lockdowns pause many forms of economic activity. Some countries are now starting to unlock, permitting a wider range of economic activities to be undertaken and allowing increased mobility. The effects of unlocking are uncertain, especially with the number of people infected still rising.
- We project that global GDP will fall by 5 per cent this year, a substantially larger fall than during the financial crisis, taking global GDP back to 2018 levels, with unemployment rising as a consequence.
- Once economic activity re-establishes after lockdowns are lifted, the increase in output could result in substantial year-on-year increases in GDP next year. We project an increase of 6¼ per cent in global GDP. Even with such an increase, however, the level of GDP at the end of 2021 will be lower than had the pandemic not occurred.
The immediate economic outcomes from the pandemic and the containment measures to protect public health are evident in the sharp falls in economic activity being reported by countries in the first half of this year. The financial support measures to sustain economies during lockdown have prevented an even larger fall in global GDP than the 5 per cent we project for this year. Despite these, however, unemployment rates are rising.
Our projections assume that as the incidence of the virus recedes, governments, aided by virus testing and healthcare measures, will ease lockdowns and that this is achieved without a major second wave of virus infections occurring, which would lead to the re-imposition of control measures. As a consequence, the worst effects of the downturn should be seen this year. But we are very mindful of the huge uncertainties, both medical and economic, around these assumptions.
The severity and timing of the curtailment of economic activity has varied across countries, with China already seeing output rise in the second quarter after the sharp fall in the first quarter. How quickly economies will rebound is highly uncertain, as it depends upon the confidence in and capabilities of health care systems, the stimulus measures adopted by governments and the degree of damage suffered by individuals and businesses.
As a result of the pandemic and actions to support their economies, governments will see their indebtedness increase with, in many cases, ultra-low sovereign bond yields helping to finance such borrowing. Policy interest rates look set to be low for longer and international trade may be persistently affected.
“While the economic policy responses have been swift, they have not been coordinated. It is not obvious that policies to unlock economies will be coordinated either,” said Barry Naisbitt, Associate Research Director for Global Macroeconomics at NIESR.
“Given the risk of a second wave of the virus and of long-term economic scarring, there is a compelling case for international policy coordination to ensure that public health is restored and that the benefits of a global economic recovery are widely shared.”
Notes for editors:
The full forecast for the global economy will be published in the National Institute Economic Review no. 253 on Wednesday 29 July. Details of NIESR’s previous global economic forecast can be found here.
For a full copy of the world economic forecast or to arrange interviews, please contact the NIESR Press Office: press [at] niesr.ac.uk / l.pieri [at] niesr.ac.uk /p.thornton [at] niesr.ac.uk / 07930 544 631 / 07941 443 781
For technical questions related to the forecast, please contact:
- Iana Liadze on +44 (0)20 7654 1904 / i.liadze [at] niesr.ac.uk
- Barry Naisbitt on +(44) 0207 6541951 b.naisbitt [at] niesr.ac.uk