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Pneumonia epidemic: IMF predicts global economic contraction comparable to Great Depression

On 9th, President of the International Monetary Fund (IMF) Georgieva said that the new crown pneumonia will cause the worst recession since the Great Depression in the 1930s.

MF expects China’s situation will be better than Europe and the United States. After the Chinese epidemic peaked in the first quarter, corporate activities are gradually recovering, and the economy is expected to grow by 1.2% in 2020.

Five days later, the IMF announced the “World Economic Outlook 2020”, predicting that the global economy will shrink by 3% this year.

According to this forecast data, the global economic contraction rate in 2020 will be the largest since the Great Depression in the 1930s. As a comparison, the financial crisis caused the global economic contraction by 0.7% in 2009.

According to IMF estimates, this year and next two years, the global economic loss will reach 9 trillion US dollars, the scale is equivalent to the total economic volume of one Japan plus one Germany, the two countries are the world’s third and fourth largest economies.

Agathe Demarais, Global Forecast Director of the Economist Intelligence Unit (EIU), told BBC Chinese that the latest IMF forecast (global shrinkage of 3%) is roughly in line with the latest forecast of the Economist Intelligence Unit. Before the outbreak of the new crown, the Economist Intelligence Unit estimated that global real GDP growth would be weak this year, at 2.3%. But the epidemic changed the rules of the game, and it is now expected that the global economy will shrink by 2.5% this year.

If the impact of the epidemic stretches to the third quarter of this year, the IMF predicts that it may cause the “scar effect” of bankruptcy and long-term unemployment, and the global economy will likely shrink further by 3%.

If the impact of the epidemic stretches to the third quarter of this year, the IMF predicts that it may cause the “scar effect” of bankruptcy and long-term unemployment, and the global economy will likely shrink further by 3%.
In three months, the Economist Intelligence Unit ’s forecast for global GDP growth has grown from 2.3% to -2.5%, and the IMF ’s forecast has also changed from a rather optimistic 3.3% to -3%.

The impact of the new crown epidemic on the economy quickly showed, and Georgieva described “disrupting social and economic order with” a lightning speed and a scale we have never seen before “.

“Just three months ago, we also expected that our per capita income in more than 160 member countries will achieve positive growth in 2020,” Georgieva said. “And today, this figure is reversed. We now predict This year, there will be negative growth in per capita income in more than 170 countries. “

Three months ago, the first phase of the Sino-US trade agreement was signed, and the global economy showed signs of upward recovery.

In February, the outbreak initially broke out in China, and economists often compared it to SARS 17 years ago, fearing that the outbreak would cause huge damage to China’s consumer sector.

Since March, the epidemic has spread around the world, and U.S. stocks have historically melted. The impact of the epidemic on the economy began to contrast with the financial crisis 12 years ago. The G20 also launched a rescue plan that was exactly the same as that of that year.

Georgieva said the new crown epidemic triggered the worst recession since the Great Depression in the 1930s.

From the end of March to the present, the epidemic has continued to spread. The number of unemployed people in the United States has reached a new high in a week. The plight of the global economy has begun to be compared with the Great Depression of the 1930s.

Emerging market countries are particularly vulnerable
Under the economic crisis, consumption is reduced, and the factory operating rate is reduced accordingly, which means that local workers will be reduced wages or even dismissed. If their income is affected, they will further reduce demand and consumption. The economy thus fell into a vicious circle.

For emerging market countries, this kind of blow is especially bad. Because of the turmoil in global markets, investors usually exit emerging markets first.

Georgieva said that investors have withdrawn about US $ 100 billion from these economies, more than three times the size of the divestment during the same period during the global financial crisis.

Sherilynn Raga, an economist at the Overseas Development Institute (ODI), explained that if less money flows in, the country ’s economy will perform poorly, often leading to further currency depreciation. Currency depreciation may mean higher cost of living.

These countries not only faced a large outflow of foreign capital, but also faced economic stagnation after the “blockade” of the epidemic. The financial situation may be tightened under a double blow.

To assist fragile economies, the IMF and the World Bank urged creditor countries such as China to temporarily suspend debt service payments on bilateral loans. The IMF itself is well prepared, deploying a lending capacity of $ 1 trillion.

Life in developed countries is not easy
Georgieva said the new crown epidemic triggered the worst recession since the Great Depression in the 1930s.
Europe and the United States have serious epidemics, and the total economic volume of the IMF will shrink significantly.

The GDP of Italy and Spain, which are severely affected, are expected to shrink by 9.1% and 8.0%, respectively, and the total economies of Germany and France are expected to shrink by 7% and 7.2%, respectively.

The total economic volume of the entire euro zone will shrink by 7.5%, while the United States is slightly better, but it is expected to shrink this year by 5.9%.

Britain’s predictions of its own economy are even worse. The UK Office of Budgetary Responsibility (OBR) said that the country ’s economy may shrink by 13% this year, the worst contraction in three centuries, and public borrowing will soar to its highest level since World War II.

In contrast, the IMF expects China’s situation will be better than Europe and the United States. After the Chinese epidemic peaked in the first quarter, corporate activities are gradually recovering, and the economy is expected to grow by 1.2% in 2020, but it is also far below the estimated 6% before the outbreak.

Although major economies have launched massive rescue plans, they also bury hidden worries.

De Mare said that if efforts to contain the epidemic have dried up the developed countries’ fiscal revenue and public spending has increased significantly, it may trigger a sovereign debt crisis. The European countries most affected by the epidemic, such as Italy and Spain, were already in financial trouble before the outbreak, which made the situation even more complicated.

The massive rescue plan increased the fiscal deficit sharply. Later, the government had to use more fiscal revenue to repay debts and interest, affecting long-term development and forming a “hangover effect” after the crisis.

In the post-epidemic era, the economic rebound continues to be sluggish

IMF chief economist Gita Gopinath said that the IMF’s prediction scenario is that the new coronavirus epidemic in most countries will peak in the second quarter and will subside in the second half of this year. The epidemic prevention measures will be gradually lifted.

Even under this “best hypothetical scenario”, the global economy may lose a total of US $ 9 trillion in two years, which is more than the combined gross domestic product (GDP) of Germany and Japan.

However, it will partially rebound in 2021, and the global economy has grown at a rate of 5.8% on the basis of the previous year’s contraction. The IMF also reminded that its prediction has “great uncertainty”, and the final result may be much worse, depending on the development of the epidemic.

If the impact of the epidemic stretches to the third quarter of this year, the IMF predicts that it may cause the “scar effect” of bankruptcy and long-term unemployment, and the global economy will likely shrink further by 3%.

The worse scenario hypothesis is that if the epidemic breaks out again in 2021 and is forced to take more blockade actions, it may lead to a further reduction in global gross domestic product (GDP) by 5-8 percentage points next year.

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