Global Economic Prospects

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 emerging market and developing economies (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. See Less

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 emerging market and developing economies (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. See Less

Current projections suggest that the COVID-19 global recession will be the deepest since the end of World War II, with the largest fraction of economies experiencing declines in per capita output since 1870. Output of emerging market and developing economies (EMDEs) is expected to contract in 2020 for the first time in at least 60 years. The current global recession is also unique in that global growth forecasts have been revised down more steeply and rapidly than in any other recessions since at least 1990. The gradual nature of forecast downgrades in previous global recessions suggests that further downgrades may be in store as forecasters absorb new information about the evolution of the pandemic. As such, additional policy measures to support activity may be needed in the coming months. See Less

COVID-19 will take an especially heavy humanitarian and economic toll on emerging markets and developing economies (EMDEs) with large informal sectors. Participants in the informal sector—workers and small enterprises—are often not registered with the government and hence have no access to government benefits. Informality is associated with underdevelopment in a wide range of areas, such as widespread poverty, lack of access to financial systems, deficient public health and medical resources, and weak social safety nets. These vulnerabilities have amplified the economic shock to livelihoods from COVID-19 and threatened to throw large numbers of people into extreme poverty. The impact is likely to be particularly severe on women, due to their outsized participation in sectors that are more affected by the pandemic. While the effects of the crisis continue, it is critical to implement effective delivery channels to quickly provide the support that informal workers and firms need to survive. Unconditional support programs would be advisable in many EMDEs. Given their limited resources, low-income countries will require increased international funding for the effective implementation of such programs. See Less

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 emerging market and developing economies (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. See Less