The widespread financial toll, which has upended supply, trade and finance, will reduce advanced economies by 7 percent.
The global economy is expected to shrink by 5.2 percent this year due to the “swift and massive” shock brought on by the global pandemic, as per the World Bank.
In its Global Economic Prospects report, released on Monday (June 9), the international monetary oversight group paints a bleak picture, noting that the 2020 recession is the worst since World War II.
“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” said Ceyla Pazarbasioglu, vice president for equitable growth, finance and institutions.
The widespread financial toll, which has upended supply, trade and finance, will reduce advanced economies by 7 percent. Emerging markets and developing economies (EMDEs) are forecast to contract by 2.5 percent, sending millions of people into extreme poverty.
“The global community must unite to find ways to rebuild as robust a recovery as possible to prevent more people from falling into poverty and unemployment,” said Pazarbasioglu, who noted the World Bank’s top priority is addressing global health and the economic emergency.
With more than 7 million cases reported globally, including 414,780 deaths and more than 3 million recoveries, the long-term effects of the COVID-19 pandemic are hard to measure and predict.
Assuming the worldwide epidemic is contained, and restrictions and lockdowns are not reimposed, a rebound of 4.2 percent in 2021 is projected in the World Bank report.
However, if the pandemic is protracted, and supply chains and global trade are further disrupted, a contraction of 8 percent this year would delay next year’s recovery.
“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. “If the past is any guide, there may be further growth downgrades in store, implying that policymakers may need to be ready to employ additional measures to support activity.”
More than 90 percent of global economies have plunged into recession. The data also indicates that output from EMDEs will fall — by 2.5 percent — for the first time in six decades. The recession of 2020 is also unique in that it is the first to be brought on solely by a pandemic.
The grim outlook warns that the “deep recession” will ultimately weigh on output for years to come. To counter some of these impacts, the World Bank proposes that governments look to implement reforms for long-term growth prospects.
On the upside, the 2020 recession is expected to last only one year, and although this is the worst since 1945, the global economy has experienced 14 global recessions since 1870.
COVID-19’s toll on the resource space
The monumental downturn is weighing on all sectors, and the resource space has been no exception. 2020 will also be marked by the fastest and steepest declines in global growth forecasts.
The oil sector has experienced the most volatility, with prices for West Texas Intermediate crude falling from US$61 a barrel in January to US$12.34 at the end of April.
The steep drop in prices, declines in demand and production reductions have prompted the World Bank to revise its 2020 and 2021 projections.
“Overall, oil prices are expected to average US$32 per barrel in 2020 and US$38 per barrel in 2021 — US$26 and US$21 per barrel below January forecasts, respectively,” the report reads.
“Prices are anticipated to decline 16 percent in 2020 before showing a modest increase in 2021. This forecast is predicated on a recovery of Chinese demand, which accounts for around 50 percent of the consumption of base metals,” the report reads.
Highlighting the complex energy needs of all countries, especially those where oil remains the primary export, the writers of the report call for energy reform in EMDEs in order to make their economies less susceptible to the effects of price volatility.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.