The International Monetary Fund (IMF) warns the global economic paralysis inflicted by the raging COVID-19 pandemic -- which it calls "the Great Lockdown" -- is "unlike anything the world has seen before" and says the worst has yet to hit.
This frightening future prediction has led the IMF to downgrade a prediction made in April the global economy will contract by 3% this year. IMF is now warning the decline will be significantly worse but didn't give a revised estimate.
IMF chief economist Gita Gopinath noted that for the first time since the Great Depression of 1929, both advanced and emerging market economies will be in recession in 2020. She said the IMF's forthcoming World Economic Outlook Update to be released this month will show negative growth rates even worse than previously estimated despite some countries beginning to reopen their battered economies.
The IMF report points out the services industry has been more severely harmed by The Great Lockdown compared to manufacturing, which is a surprising change from previous economic crises where a drought in investment hit manufacturing the hardest.
Gopinath said as a result of this, it's possible the pent-up consumer demand will see a quicker rebound unlike after previous crises. She said the world's facing the worst recession since the Great Depression. On the upside, this unprecedented crisis crimping consumer spending is seeing people save a lot more, hence one reason for the predicted spike in spending.
Back in January, the IMF forecast a global GDP expansion of 3.3% for this year -- but that was before COVID-19 ruined the global economic picture. It also predicted, quite correctly given events five months later, it's very likely the global economy in 2020 will experience its worst recession since the Great Depression. The downturn will surpass that of the Great Recession of 2008 to 2009.
In January, the IMF also estimated 3.4% growth for global GDP in 2021. This estimate has been boosted to 5.8% since growth will rise from a lower base after 2020′s projected contraction. The IMF predicts a partial recovery in 2021 but only if the pandemic eases throughout this year.
Other global financial institutions also warn about the massive economic damage geing wrought by the unparalleled economic slowdown triggered by the pandemic. The World Trade Organization (WTO) said global trade will contract by between 13% and 32% this year. The Organization for Economic Coordination and Development (OECD) warned the immense economic pain from the pandemic will be felt for a long time to come.
