COVID-19

The IMF predicts the global economy will shrink by 5% this year

Justin Ho Jun 24, 2020
Heard on: Marketplace
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A man passes graffiti about the coronavirus in Beirut, Lebanon. The IMF is predicting a world-wide downturn of 5% as people spend less money while stuck at home due to COVID-19. Patrick Baz/AFP via Getty Images
COVID-19

The IMF predicts the global economy will shrink by 5% this year

Justin Ho Jun 24, 2020
A man passes graffiti about the coronavirus in Beirut, Lebanon. The IMF is predicting a world-wide downturn of 5% as people spend less money while stuck at home due to COVID-19. Patrick Baz/AFP via Getty Images
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The International Monetary Fund Wednesday released a pretty downbeat economic forecast. It expects a nearly 5% contraction in global GDP this year — that’s 2% worse than the fund previously estimated. A number like that can sound a little abstract, especially on a global scale, so what does it look like?

Well, the world economy contracted by less than 1% in the Great Recession of 2008 and 2009. Ken Rogoff, professor of economics at Harvard and former chief economist at the IMF, said a 5% global contraction is “like a meteor hitting the earth. It is a massive number.”

The IMF said the global economy will contract as people around the world spend less because they’re stuck at home. Business activity will drop. And that means hundreds of millions of lost jobs — especially for low skilled workers.

“The Federal Reserve was calling near double-digit unemployment at the end of this year,” Rogoff said. “I think we could have double digit unemployment at the end of next year.”

Meanwhile, government debt will rise as countries borrow to prop up their economies.

Sebastian Mallaby, senior fellow for international economics at the Council on Foreign Relations, said that’s happening more in developed countries. Countries with emerging economies — India and Latin American countries — can’t afford to borrow enough to address the effects of the pandemic.

“Everything from hunger, to lack of access, to any kind of assistance from the health system — those kinds of problems are going to be way more acute in the emerging world,” Mallaby said.

A country’s case numbers will also affect how much pain a 5% contraction causes.

Jay Bryson, managing director and the chief economist for Wells Fargo’s Corporate and Investment Bank, said in Europe, cases aren’t rising like they are in the U.S.

“Later this year, depending on how things evolve here, Europe could potentially be growing faster than the United States,” Bryson said.

The IMF projects that the U.S. economy is likely to fare even worse than the global one.

It expects U.S. GDP to drop by 8%.

COVID-19 Economy FAQs

How many people are flying? Has traveled picked up?

Flying is starting to recover to levels the airline industry hasn’t seen in months. The Transportation Security Administration announced on Oct. 19 that it’s screened more than 1 million passengers on a single day — its highest number since March 17. The TSA also screened more than 6 million passengers last week, its highest weekly volume since the start of the COVID-19 pandemic. While travel is improving, the TSA announcement comes amid warnings that the U.S. is in the third wave of the coronavirus. There are now more than 8 million cases in the country, with more than 219,000 deaths.

How are Americans feeling about their finances?

Nearly half of all Americans would have trouble paying for an unexpected $250 bill and a third of Americans have less income than before the pandemic, according to the latest results of our Marketplace-Edison Poll. Also, 6 in 10 Americans think that race has at least some impact on an individual’s long-term financial situation, but Black respondents are much more likely to think that race has a big impact on a person’s long-term financial situation than white or Hispanic/Latinx respondents.

Find the rest of the poll results here, which cover how Americans have been faring financially about six months into the pandemic, race and equity within the workplace and some of the key issues Trump and Biden supporters are concerned about.

What’s going to happen to retailers, especially with the holiday shopping season approaching?

A report out recently from the accounting consultancy BDO USA said 29 big retailers filed for bankruptcy protection through August. And if bankruptcies continue at that pace, the number could rival the bankruptcies of 2010, after the Great Recession. For retailers, the last three months of this year will be even more critical than usual for their survival as they look for some hope around the holidays.

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