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Thursday, June 11, 2020 / 05:02 PM / By World
Bank Group / Header Image Credit: World Bank Group
Executive Summary
COVID-19 has triggered a global crisis like no other-a global health
crisis that, in addition to an enormous human toll, is leading to the deepest
global recession since the second world war. While the ultimate growth outcome
is still uncertain, and an even worse scenario is possible if it takes longer
to bring the health crisis under control, the pandemic will result in output
contractions across the vast majority of emerging market and developing
economies (EMDEs). Moreover, the pandemic is likely to exert lasting damage to
fundamental determinants of long-term growth prospects, further eroding living
standards for years to come. The immediate policy priorities are to alleviate
the ongoing health and human costs and attenuate the near-term economic losses,
while addressing challenges such as informality and weak social safety nets
that have heightened the impact on vulnerable populations. Once the crisis
abates, it will be necessary to reaffirm credible commitment to sustainable
policies-including medium-term fiscal frameworks in energy-exporting EMDEs
suffering from the large plunge in oil prices-and undertake the necessary
reforms to buttress long-term growth prospects. For these actions, global
coordination and cooperation will be critical.
Global Outlook: Pandemic, Recession: The Global Economy in Crisis. The COVID-19 pandemic has, with alarming speed, delivered a global economic shock of enormous magnitude, leading to steep recessions in many countries. The baseline forecast envisions a 5.2 percent contraction in global GDP in 2020-the deepest global recession in eight decades, despite unprecedented policy support. Per capita incomes in the vast majority of EMDEs are expected to shrink this year. The global recession would be deeper if bringing the pandemic under control took longer than expected, or if financial stress triggered cascading defaults. The pandemic highlights the urgent need for health and economic policy action-including global cooperation-to cushion its consequences, protect vulnerable populations, and improve countries' capacity to prevent and cope with similar events in the future. Since EMDEs are particularly vulnerable, it is critical to strengthen their public health care systems, to address the challenges posed by inform lity and limited safety nets, and, once the health crisis abates, to undertake reforms that enable strong and sustainable growth.
Regional Macroeconomic Implications of COVID-19. The rapid rise of COVID-19 cases, together with the wide range of measures to slow the spread of the virus, has slowed economic activity precipitously in many EMDEs. Economic disruptions are likely to be more severe and protracted in those countries with larger domestic outbreaks, greater exposure to international spillovers (particularly through exposure to global commodity and financial markets, global value chains, and tourism), and larger pre-existing challenges such as informality.
Growth
forecasts for all regions have been severely downgraded; Latin America and the
Caribbean (LAC) and Europe and Central Asia (ECA) in particular have large
downgrades partly because of the size of their domestic outbreaks and exposure
to global spillovers, while South Asia's substantial downgrade is primarily the
result of stringent lockdown measures. Many countries have avoided more adverse
outcomes through sizable fiscal and monetary policy support measures. Despite
these measures, per capita incomes in all EMDE regions are expected to contract
in 2020, likely causing many millions to fall back into poverty.
This
edition of Global Economic Prospects also includes analytical chapters
on the short- and long-term growth impact of the pandemic, as well as on global
implications of the recent plunge in oil prices.
Lasting Scars of the COVID-19 Pandemic. The COVID-19 pandemic has struck a devastating blow to an already-fragile global economy. Lockdowns and other restrictions needed to address the public health crisis, together with spontaneous reductions in economic activity by many consumers and producers, constitute an unprecedented combination of adverse shocks that is causing deep recessions in many advanced economies and EMDEs. Those EMDEs that have weak health systems; those that rely heavily on global trade, tourism, or remittances from abroad; and those that depend on commodity exports will be particularly hard-hit. Beyond its short-term impact, deep recessions triggered by the pandemic are likely to leave lasting scars through multiple channels, including lower investment; erosion of the human capital of the unemployed; and a retreat from global trade and supply linkages.
These
effects may well lower potential growth and labor productivity in the longer
term. Immediate policy measures should support health care systems and moderate
the short-term impact of the pandemic on activity and employment. In addition,
a comprehensive reform drive is needed to reduce the adverse impact of the
pandemic on long-term growth prospects by improving governance and business
environments, and expanding investment in education and public health.
Adding
Fuel to the Fire: Cheap Oil during the Pandemic.
The outbreak of COVID-19 and the wide-ranging measures needed to slow
its advance have precipitated an unprecedented collapse in oil demand,
a surge in oil inventories, and, in March, the steepest one-month
decline in oil prices on record. In the context of the current
restrictions on a broad swath of economic activity, low oil prices
are unlikely to do much to buffer the effects of the pandemic, but they may
provide some initial support for a recovery once these restrictions
begin to be lifted. Like other countries, energy-exporting EMDEs face an
unprecedented public health crisis, but their fiscal positions were
already strained even before the recent collapse in oil revenues. To
help retain access to market-based financing for fiscal support programs,
these EMDEs will need to make credible commitments to a sustainable medium-term
fiscal position. For some of them, current low oil prices provide an
opportunity to implement energy-pricing policies that yield efficiency
and fiscal gains over the medium term.
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