Press Release: Grim Short-Term Prospects for the World Economy
FOR IMMEDIATE RELEASE
- The effects of the coronavirus pandemic and the control measures taken to combat its spread have transformed the immediate global economic outlook in an unprecedented manner from our previous forecast in February.
- These are highly uncertain times. And we expect widespread falls in GDP, particularly in the first half of this year, as the lockdowns have suspended many forms of economic activity. Our main scenario assumes that the measures to control movement and social contact will be eased gradually, permitting a wider range of economic activities to be undertaken as 2021 dawns.
- We project that global GDP will fall by 3½ per cent this year, a downward revision of around 6½ percentage points from our view in February. The fall in GDP is substantially larger than during the Financial Crisis (–0.1 per cent). The closest paralleli s the Great Depression, when there was multi-year fall in output.
- Once lockdowns are lifted, higher output could lead to marked year-on-year rises in GDP next year. We project an increase of some 7 per cent. But in many countries, even by 2022, GDP will still be lower than had the pandemic not occurred.
The coronavirus pandemic and the responses of governments to prevent its spread and reduce the number of fatalities, have suspended much economic activity. In order to shield households and companies from the worst effects of the economic downturn, monetary and fiscal policies have been mobilised. Despite these, unemployment rates are rising at a whirlwind rate.
Our projections assume that governments, aided by virus testing and healthcare measures, will ease the lockdowns during the second and third quarters of this year and progressively into next year without a second wave of virus infections leading to the re-imposition of control measures. As a consequence, the worst effects of the downturn should be short-lived, and economic activity rises next year. But we are very mindful of the uncertainties, both medical and economic, around this assumption.
The severity and timing of the curtailment of economic activity will vary across countries, notably with China likely to see output rise in the second quarter after the sharp fall seen in the first quarter of this year. The speed at which economies will be able to rebound is highly uncertain, as it depends upon the medical situation, the policies adopted by governments and the degree of damage suffered by businesses. At this stage, these are all unknown factors. Emerging economies, in particular, have seen rapid outflows of capital and falling commodity prices and more than 100 countries have approached the IMF already for access to Rapid Financing and Rapid Credit facilities.
Governments will see their indebtedness increase as a result of their actions to support their economies. These increases will be financed at ultra-low sovereign bond yields in many cases. The downturn will be amplified by trade links and accordingly makes a strong case for a co-ordinated policy response at the level of the G20.
“While the policy response to the pandemic in the advanced world has been swift and broadly synchronous, it has so far been largely uncoordinated.” said Barry Naisbitt, Associate Research Director for Global Macroeconomics at NIESR.“in these unprecedented times there is a compelling case for international policy coordination to restore both public health and the health of the global economy.”
Notes for editors:
The full forecast for the global economy will be published in the National Institute Economic Review no. 252 on Wednesday 29 April. 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:
- Barry Naisbitt on +(44) 0207 6541951 / b.naisbitt [at] niesr.ac.uk
- Iana Liadze on +44 (0)20 7654 1904 / i.liadze [at] niesr.ac.uk
The National Institute Economic Review is a quarterly journal of NIESR. From this issue the NIER is published by Cambridge University Press (CUP). Founded in 1534, CUP is the world's oldest publishing house and the second-largest university press in the world.The Review is published in February, May, August and November, and it is available from Cambridge University Press here. For enquiries please contact: journals [at] cambridge.org