Massive risks to world economy as virus battle rages

Economists predict violent recession eclipsing even the Great Depression

LONDON: The coronavirus outbreak and resulting lockdown of billions of people threatens the global economy to the point where economists are predicting the most violent recession in recent history, perhaps even eclipsing the Great Depression.

The crash will almost certainly be accompanied by a surge in unemployment, especially in countries with weaker worker rights, such as the United States.

Ahead of Thursday’s emergency virtual G20 meeting, here are the key concerns.

“The G20 economies will experience an unprecedented shock in the first half of this year and will contract in 2020 as a whole, before picking up in 2021,” economists from the rating agency Moody’s wrote on Wednesday.

Angel Gurria, head of the Organisation for Economic Coperation and Development (OECD), told the BBC the world economy would suffer “for years”.

The current crisis is likely to be more severe than the 2008 financial crisis because it affects the entire economy, with a collapse in supply due to the shuttering of factories and a similar crash in demand with billions of people in lockdown.

The transport and tourism sectors have been the first to feel the pain, although some such as pharmaceuticals, health equipment, sanitary products, food and online trade have seen a boost.

The collective GDP of the G20 countries is predicted to contract 0.5%, according to Moody’s, with the US down 2% and the eurozone losing 2.2%.

China is expected to buck the trend and grow, but at a much-reduced rate of 3.3%, according to Moody’s.

Most major banks believe the US has already fallen into recession, with Goldman Sachs forecasting a contraction of 3.8% this year and Deutsche Bank predicting the worst US slowdown since “at least World War II”.

In Europe, where the PMI business activity studies for March were the worst ever recorded, the German economy minister warned of a contraction of at least 5% in 2020.

France’s economy could shrink by 1.4%, according to Moody’s.

Britain could fare worse, with KPMG predicting a fall of 2.6%, but that loss could double if the pandemic lasts until the end of the summer.

Capital Economics paints the darkest picture, warning of a possible 15% contraction in the second quarter, almost twice as bad as during the Great Depression of the 1930s.

Unemployment rates are expected to soar, particularly in countries where levels have recently been at historic lows, such as Britain and the US.

These economies have relied heavily on the boom in jobs in the “gig economy”, such as taxi drivers and delivery workers, which offers little or no social protection.