World Bank Warns Of Steep Contraction Due To Virus

The coronavirus will cause global economic output to contract by 5.2 per cent this year, the World Bank said on Monday, warning that its latest forecasts would be revised downward if uncertainty over the pandemic and business lockdowns persist.

In its latest Global Economic Prospects report, the World Bank said that advanced economies are expected to shrink 7 per cent in 2020, while emerging market economies will contract 2.5 per cent, their first contraction since aggregate data became available in 1960.

On a per-capita GDP basis, the global contraction will be the deepest since 1945-46 as second world war spending dried up.

The updated forecasts show more damage to the economy than estimates released in April by the International Monetary Fund, which predicted a 3 per cent global contraction.

The IMF plans to update its forecasts on June 24 and Managing Director Kristalina Georgieva has said that further cuts are "very likely."

World Bank officials said their baseline scenario assumes that social distancing lockdowns and temporary business closures begin to ease at the end of June.

But the report shows a downside scenario in which lockdowns are extended by three months this year. Should that occur, the 2020 contraction would deepen to 8 per cent to 10 per cent in advanced economies and 5 per cent in emerging markets, with far more permanent business closures, a bigger collapse in global trade flows, layoffs and deep cuts in household spending.

"If that scenario materialises, the downside scenario, we are expecting a very sluggish recovery in 2021," World Bank Prospects Group director Ayhan Kose told reporters. "Global growth barely would begin to recover" at around 1.3 per cent next year.

The new forecasts also increased the World Bank's estimate of how many people will be pushed back into extreme poverty by the pandemic, to between 70 million and 100 million from a previous estimate of over 60 million. (Reuters)