The Strategist

World Bank expects 5.2% fall in global GDP in 2020

06/10/2020 - 05:36

The coronavirus pandemic and quarantine measures introduced to contain it were a sharp and widespread shock for the global economy, plunging it into a deep recession, according to the Global Economic Prospects (GEP) in World Bank (WB)’s June review.

According to the WB forecast, global GDP will decline by 5.2% in 2020, and this is the highest rate since the Second World War. At the same time, a decrease in per capita GDP is expected to affect the largest share of countries since 1870.

In the January GEP, the World Bank predicted a 2.5% growth in the global economy this year, so in June the forecast was lowered immediately by 7.7 percentage points (pp).

Economic activity in developed countries this year is likely to decline by 7% amid serious shocks affecting domestic supply and demand, trade and finance, the WB notes. In emerging and developing countries (EM and DE), GDP is expected to decline by 2.5% this year, with the drop falling first in at least sixty years.

In January, the WB predicted a 1.4% increase in the GDP of developed countries, and a 4.1% increase in EM and DE.

The global per capita income is expected to fall by 3.6%, which will plunge millions of people into extreme poverty.

The WB baseline forecast is based on the assumption that a pandemic recession will be sufficient to lift restrictive measures in advanced economies by the middle of this year, and in EM and DE - a little later, that the adverse global consequences will smooth out in the second half of the year, and failures on financial markets will not be long.

Under these conditions, world GDP will increase by 4.2% in 2021, growth in advanced economies will be 3.9%, and in EM and DE - 4.6%, as the WB expected.

Organization experts note, however, that this forecast is accompanied by "extreme uncertainty" given the presence of bearish risks, including the risk of a pandemic, the occurrence of financial problems, as well as the worsening situation in world trade.