The global economy could shrink by up to one per cent in 2020 due to the coronavirus pandemic, a reversal from the previous forecast of 2.5 per cent growth, the UN has said, warning that it may contract even further if restrictions on the economic activities are extended without adequate fiscal responses.
The analysis by the UN Department of Economic and Social Affairs (DESA) said the COVID-19 pandemic is disrupting global supply chains and international trade. With nearly 100 countries closing national borders during the past month, the movement of people and tourism flows have come to a screeching halt.
DESA added that the contraction could be even higher if governments fail to provide income support and help boost consumer spending. The analysis noted that before the outbreak of the COVID-19, world output was expected to expand at a modest pace of 2.5 per cent in 2020, as reported in the World Economic Situation and Prospects 2020.
Taking into account rapidly changing economic conditions, the UN DESA’s World Economic Forecasting Model has estimated best and worst-case scenarios for global growth in 2020. In the best-case scenario — with moderate declines in private consumption, investment and exports and offsetting increases in government spending in the G-7 countries and China — global growth would fall to 1.2 per cent in 2020.
The DESA said as businesses lose revenue, unemployment is likely to increase sharply, transforming a supply-side shock to a wider demand-side shock for the economy. Against this backdrop, the UN-DESA is joining a chorus of voices across the UN system calling for well-designed fiscal stimulus packages which prioritize health spending and support households most affected by the pandemic.
“Urgent and bold policy measures are needed, not only to contain the pandemic and save lives but also to protect the most vulnerable in our societies from economic ruin and to sustain economic growth and financial stability,” Under-Secretary-General for Economic and Social Affairs Liu Zhenmin said. The analysis also warns that the adverse effects of prolonged economic restrictions in developed economies will soon spill over to developing countries via trade and investment channels. A sharp decline in consumer spending in the European Union and the United States will reduce imports of consumer goods from developing countries.