Greatest since the Great Depression

The International Monetary Fund has issued a report predicting that the global impact of the Covid-19 coronavirus pandemic will make 2020 the worst year for the world economy since the Great Depression. The downturn caused by the pandemic is projected to be far worse than the Great Recession of 2009, which followed the global financial crisis of 2008 and 2009. The IMF report says the global economy will shrink by around 3% this year. In 2009, it only shrank by 0.1%. This is a sharp turnaround from January, when the Fund projected growth of 3.3%, even while accounting for the economic impact of COVID-19 in some parts of the world.

The IMF’s World Economic Outlook says things could get even worse and is not very keen on its own positive prediction for 2021. While predicting 5.8% global growth in the year 2021, it claims, “Even after the severe downgrade to global growth, risks to the outlook are on the downside,” and that “the effects of the health crisis on economic activity and financial markets could turn out to be stronger and longer-lasting.” The risk would be “severe” if bringing the pandemic under control took longer than what the IMF estimated, or if there was another wave of infections at any time during the next year. According to the Fund’s chief economist, global gross domestic product could fall by as much as $9 trillion — almost 10% — by the end of the year 2021.

And that is still not the worst-case scenario. Under such circumstances, to say the economic future for Pakistan looks grim would be considered a positive statement. A new World Bank estimate has already suggested that Pakistan’s economy may actually shrink by 2.2%, revising its already low 1% growth estimate from last week. Negative growth in a developed economy is a problem. In a developing economy, it is a recipe for disaster. The only good news may be that the IMF is also calling an executive board meeting on April 16 to consider disbursement of another loan of $1.4 billion to Pakistan to boost foreign exchange reserves and extend budgetary support in the wake of the Covid-19 economic slowdown. 

Published in The Express Tribune, April 16^th, 2020.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.