World Economic Outlook 2020 & 2021 Amidst COVID-19 Crisis

Photo by Tyler Casey on Unsplash

Internalion Monetary Fund published its World Economic Outlook report on 14th April 2020. Figures are as griming as someone might have thought amidst the alarming COVID-19 pandemic.  IMF expects the world economy to shrink by 3 percent in year 2020; USA economy by 5.9%; EURO zone by 7.5% and Japan by 5.2%.

IMF present this forecast based on the premise that COVID-19 crisis shall be over by the mid of 2020 and all efforts to lift the economic activities shall be undertaken by the policy makers. IMF forecasts the economy to be back and expanding at 5.8% globally in 2021.

IMF's chief economist, Gita Gopinath, warned the world in the report;

It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago. The Great Lockdown, as one might call it, is projected to shrink global growth dramatically. A partial recovery is projected for 2021, with above trend growth rates, but the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound. Much worse growth outcomes are possible and maybe even likely. This would follow if the pandemic and containment measures last longer, emerging and developing economies are even more severely hit, tight financial conditions persist, or if widespread scarring effects emerge due to firm closures and extended unemployment.

IMF warning is very much correlating with the early shocks which were received in the current crisis. worldwide lock-downs are creating less demand of goods, less supply of labor and concurrently less production hours. We experienced a sharp drop in goods prices and then significant tighter financial conditions. Crude oil prices have dropped by 65% since Jan 2020 (a drop of almost US$ 45 a barrel). Future markets suggest that oil prices will remain lower than US$ 45 a barrel through 2023.

Below is the commodity prices graph presented by IMF which shows lack of capital market confidence and lower energy & metal commodity prices.

Report also indicated that around 85% of world countries are going to experience negative per capita income growth in year 2020. This figure is highest since the year 1990 as indicated very broadly in below two graphs.

IMF Managing Director said on 9th April 2020 that;

Just three months ago, we expected positive per capita income growth in over 160 of our member countries in 2020. Today, that number has been turned on its head: we now project that over 170 countries will experience negative per capita income growth this year.

OECD also issued its economic outlook on 2nd March 2020. It also forecast the same V shaped curve for the economy in year 2020 & 2021. Although it forecasts the real GDP of world to shrink by around 1.5% but this report was issued at a bit early stage than IMF report. Below is the chart taken from that report which shows the impact on worldwide growth prospects.

The question which arises today is the shape of worldwide growth.

Some experts agree on V-Shaped curve and are very optimistic that the issue of COVID-19 shall be over within or near to the end of 2nd quarter of year 2020. In such case, they expect a v shape curve which reflect less economic growth in year 2020 but a good increase in 2021 based on the policy makers efforts to uplift the investors confidence and other fiscal & monetary measures.

Some experts see the U-shape economy curve and expect the COVID-19 to stay till the end of year 2020 with the prolong season of recovery.

So just the effective and good medical response by individual countries and world in large will determine the economic outlook and bring countries back to their pre-crisis economic output and living standard.

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