World Bank expects worst downturn since WWII

WASHINGTON－The global economy is on track to shrink by 5.2 percent this year amid the COVID-19 pandemic, the World Bank Group said in its latest "Global Economic Prospects" released on Monday.

The 5.2 percent downturn will be the fourth-worst global downturn over the past 150 years, exceeded only by the Great Depression of the 1930s and the periods after World War I and World War II when the economies of many war-torn countries were devastated and the United States and other nations demobilized after massive defense buildups.

Economic activity in advanced economies is anticipated to contract 7 percent in 2020 as domestic demand and supply, trade, and finance have been severely disrupted, the report said. The US economy is projected to shrink by 6.1 percent this year, while the euro area could see a 9.1-percent contraction.

Emerging market and developing economies, or EMDEs, meanwhile, are expected to contract by 2.5 percent this year, "their first contraction as a group in at least 60 years", according to the report. The economic activity in Latin America and the Caribbean, in particular, could plunge by 7.2 percent in 2020.

Growth in East Asia and the Pacific is projected to fall to 0.5 percent in 2020, the only region that could see growth this year, the report said. The Chinese economy is expected to grow by 1 percent this year.

World Bank economists cautioned that their forecast was based on an assumption that the worst of the outbreak was coming to an end and economies would pick up fairly quickly once governments begin to reopen them.

If there is a second wave of the virus that disrupts economic activity later this year, then growth this year will fall even farther and the rebound next year will be weaker, the World Bank analysts said.

A downside scenario could lead the global economy to shrink by as much as 8 percent this year, followed by a sluggish recovery in 2021 of just over 1 percent, with output in EMDEs contracting by almost 5 percent this year.

'Fastest downgrades'

"The current episode has already seen by far the fastest and steepest downgrades in global growth forecasts on record," said World Bank Prospects Group Director Ayhan Kose. In the previous Global Economic Prospects report released in January, the multilateral lender projected the global economy to grow by 2.5 percent this year.

The updated forecast also shows more damage to the economy than estimates released in April by the International Monetary Fund, which predicted a 3 percent global contraction in 2020.

The IMF plans to update its forecast on June 24 and Managing Director Kristalina Georgieva has said that further cuts are "very likely".

The World Bank's forecast for the global economy predicts a moderate recovery next year, with growth of 4.2 percent based on the current assumption.

"This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges," said Ceyla Pazarbasioglu, the World Bank Group vice-president for equitable growth, finance and institutions. The forecast also increased the World Bank's estimate of how many people will be pushed back into extreme poverty by the pandemic, to between 70 million and 100 million from a previous estimate of over 60 million.

Xinhua - Agencies