The United States’ gross domestic product (GDP) for 2020 is now being forecast to come in at minus 6.1% this year, the Eurozone’s at -9.1% and Japan at -6.1%.
Those are catastrophic numbers for the economies of those countries.
China is expected to still see positive figures with a forecast growth this year — but a gain of only 1%. That would not be enough to generate the required number of additional jobs for those seeking work in the urban areas.
This leaves the world with an average 6.2% contraction in global GDP for this year, the deepest recession for eight decades.
Metal prices are forecast to drop 16% by the end of 2020.
This is the grim outlook for the world in the latest Global Economic Prospects report from the World Bank.
It shows the world has suffered 14 global recessions since 1870 and this one is shaping up to be the fourth worst — and double the decline witnessed during the Global Financial Crisis (GFC) just over a decade ago.
The recession of 1930-32, which was the forerunner and trigger for what is known as the much longer Great Depression, saw global GDP fall by 18%.
The 1945-46 one was second worst with the world’s economy losing 15% of its value.
In third place is the 1908 shock, which saw global GDP fall 7%. This last one was triggered, first, by the 1906 San Francisco earthquake and then a six-week long run on American banks, which became known as the “Panic of 1907”.
The COVID-19 recession is the first to be triggered solely by a pandemic; the 1917-21 event was the result of a one-two punch — the First World War and then the Spanish flu pandemic.
The outbreak of swine flu in 2009 was not seen as a factor in the GFC at that time.
A global economic crisis like no other
The COVID-19 impact is unique in another way: it has been accompanied by the fastest and steepest global growth downgrades in recorded history.
“COVID-19 has triggered a global crisis like no other — a global health crisis that, in addition to an enormous human toll, is leading to the deepest recession since the Second World War,” the bank’s report said.
And there was even a chance it could get worse than the bank expects; the report is assuming an economic rebound in 2021.
“An even worse scenario is possible if it takes longer to bring the health crisis under control. Moreover, the pandemic is likely to exert lasting damage to fundamental determinants of long-term growth prospects, further eroding living standards for years to come,” the report warned.
Growth forecasts have been downgraded for all regions, most severely in Latin America and the Caribbean, Europe and central Asia, partly because of the size of their domestic outbreaks of the virus.
South Asia will suffer primarily as a result of the stringent lockdown measures imposed there.
Recession predicted to last one year
The bank said current projections suggest the COVID-19 recession will involve the deepest global recession since the one in 1945-46.
But it is predicted to last only one year, with global GDP turning positive in 2021, taking into account the fact that recessions since 1960 have lasted about that duration.
The bank said many private forecasters are more optimistic; they are saying the downturn could last for only two quarters with major advanced economies returning to growth in the third (September) quarter.
Australia already declared in recession by Federal Government
Last week, Federal Treasurer Josh Frydenberg revealed Australia was about to enter its first recession for 29 years.
The national GDP had declined by 0.3% in the March quarter and Mr Frydenberg said a recession was inevitable given the economy had grown by just 1.4% in the year to 31 March, the weakest performance since the GFC.
The June quarter figures would be worse than the March ones, he added.
He warned the Australian people to prepare themselves for “difficult days ahead” in spite of the fact this country had seen a smaller contraction than most other countries battling the effects of the coronavirus.
Global recessions since 1870
These occurred in 1876, 1885, 1893, 1908, 1914, 1917-21, 1930-32, 1945-46, 1975, 1982, 1991, 2001, 2009 and 2020.
But, a pandemic has never before been the trigger.
Financial panics began several recessions: 1876, 1930-32, 1982, 1991 and 2001.
Large changes in monetary and fiscal policies set off a couple, as did the steep rise in oil prices in 1975 and 1982; the latter was also pushed by sharp increases in inflation and the Latin American debt crisis.