In a report published on May 13, the United Nations predicted that over $8.5 trillion global economic output is feared in losses which will wipe out nearly all gains of the previous four years, according to the United Nations World Economic Situation and Prospects (WESP) mid-2020 report. It further added that the world economy would shrink by an estimated 3.2 percent this year 2020, in sharpest contraction since the Great Depression in the 1930s against the backdrop of a pandemic.
In January, before Covid-19 became a pandemic, the UN had forecast a modest acceleration in the growth of 2.5 percent in 2020, as per the report. However, as nearly 90 percent of the world economy is under some form of lockdown, the GDP growth is expected to plunge to -5.0% in 2020. A modest, 3.4% growth – barely enough to make up for the lost output – is expected in 2021. World trade is forecast to contract by nearly 15 percent in 2020 amid sharply reduced global demand and disruptions in global supply chains, the WESP report predicted.
In a pandemic scenario, that disrupted supply chains, depressed consumer demand and put millions out of work, developed economies are expected to contract by 5.0 percent in 2020, while the output of developing countries will shrink by 0.7 percent. This means, according to the UN, that the pandemic will likely cause an estimated 34.3 million people to fall below the extreme poverty line in 2020, 56 percent of which, accounts for African nations. “The pandemic, which is disproportionately hurting low-skilled, low-wage jobs, while leaving higher-skilled jobs less affected – will further widen income inequality within and between countries,” UN explained in the report published on its official site. “An additional 30 million people will fall under the rank of extreme poverty by 2030,” it further warned.
UN Chief Economist and Assistant Secretary-General for Economic Development, Elliott Harris, was quoted as saying that the “pace and strength” of the recovery from the crisis not only hinges on the efficacy of public health measures in slowing the spread of the virus, but also on the ability of countries to protect jobs and incomes, particularly of the most vulnerable members of our societies.
With chronic fiscal deficits and high public debts, developing economies are finding it very hard to implement sufficiently large fiscal packages which averaged less than 1 percent of their GDP, as per the WESP report. Falling exports and growth would undermine their debt sustainability causing growing debt distress, which, would further constrain their ability to implement much-needed stimulus measures. Further, the report outlines the importance of global co-operation to contain the pandemic and extend financial assistance to countries hardest hit by the crisis.