The IMF predicts the global economy will shrink by 5% this year
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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
What’s the outlook for vaccine supply?
Chief executives of America’s COVID-19 vaccine makers promised in congressional testimony to deliver the doses promised to the U.S. government by summer. The projections of confidence come after months of supply chain challenges and companies falling short of year-end projections for 2020. What changed? In part, drugmakers that normally compete are now actually helping one another. This has helped solve several supply chain issues, but not all of them.
How has the pandemic changed scientific research?
Over the past year, while some scientists turned their attention to COVID-19 and creating vaccines to fight it, most others had to pause their research — and re-imagine how to do it. Social distancing, limited lab capacity — “It’s less fun, I have to say. Like, for me the big part of the science is discussing the science with other people, getting excited about projects,” said Isabella Rauch, an immunologist at Oregon Health & Science University in Portland. Funding is also a big question for many.
What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?
Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”
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