‘A crisis like no other;’ IMF predicts COVID-19 will be the worst since the Great Depression


Ontario Construction News staff writer

The International Monetary Fund (IMF) in a report released Tuesday said the “Great Lockdown” coronavirus pandemic will create a more serious recession than the Great Depression in the 1930s before rebounding in 2021 with 5.8 per cent growth.

“The world has changed dramatically in the three months since our last World Economic Outlook update on the global economy. A pandemic scenario had been raised as a possibility in previous economic policy discussions, but none of us had a meaningful sense of what it would look like on the ground and what it would mean for the economy,” said Gita Gopinath, Economic  Counsellor.

“There are many reasons for optimism, despite the dire circumstances. In countries with major outbreaks, the number of new cases has come down, after strong social distancing practices were put in place. The unprecedented pace of work on treatments and vaccines also promises hope. The swift and substantial economic policy actions taken in many countries will help create the conditions for the recovery.”

In its World Economic Outlook, the IMF predicted the global economy will shrink three per cent this year. That number would trump the 0.1% contraction that happened during the 2009 financial crisis.

The outlook for Canada calls for a shrinking of 6.2 per cent this year followed by growth of 4.2 per cent in 2021. The IMF prediction represents a stark downgrade compared to its January forecast that predicted global growth of 3.3 per cent this year.

“The COVID-19 pandemic is inflicting high and rising human costs worldwide, and the necessary protection measures are severely impacting economic activity,” the report concludes.

In a baseline scenario – which assumes the pandemic fades in the second half of 2020 and containment efforts can be gradually lifted – the global economy is projected to grow by 5.8 percent in 2021 as economic activity normalizes, helped by policy support.

According to the report, risks for even more severe outcomes, however, are “substantial.”

“Effective policies are essential to forestall the possibility of worse outcomes and the necessary measures to reduce contagion and protect lives are an important investment in long-term human and economic health.”

Because the economic fallout is acute in specific sectors, policymakers will need to implement substantial targeted fiscal, monetary, and financial market measures to support affected households and businesses domestically. Also, internationally, strong multilateral cooperation is essential to overcome the effects of the pandemic, including providing help for financially constrained countries facing twin health and funding shocks, and for channeling aid to countries with weak health care systems.

Asked last week about when economic restrictions will be lifted in Canada, Prime Minister Justin Trudeau said it will be “a while, still” before the government starts lifting restrictions.

“People want to know when we can get back to normal life but the reality is we have to be extremely vigilant for many weeks. We recognize different areas of the country are not at the same place on the Covid-19 infection curve,” Trudeau said.



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