How will coronavirus affect the global economy? – World Economic Forum

The International Monetary Fund recently announced the “Great Lockdown” recession will drag global GDP lower by 3% in 2020, but its managing director now thinks the gloomy outlook could be too positive.

The coronavirus pandemic is set to leave 170 countries with lower GDP per capita by the end of the year, but the projection “may be actually a more optimistic picture than reality produces,” Kristalina Georgieva told the BBC in an interview.

“Epidemiologists are now helping us make macroeconomic projections. Never in the history of the IMF have we had that,” she added. “And what they’re telling us is that the novel coronavirus is a big unknown, and we don’t know whether it may return in 2021.”

Uncertainty around the virus’ future has left the world’s experts in the dark, but the IMF’s latest report lays out bleak outcomes for prolonged outbreaks. Should the pandemic last through 2020, the world economy will emerge with extremely modest gains the following year in a sluggish rebound.

The combination of a longer initial pandemic and a 2021 resurgence would yield an even worse downturn, the organization said. Global GDP would sharply contract in 2021 and leave “additional scarring” as credit health deteriorates.

The IMF saw a far more optimistic scenario as recently as January. The pre-outbreak economic situation was poised to improve GDP per capita in 160 countries. Yet the pandemic has quickly plunged the world into “a global recession we have not seen in our lifetimes,” the director said, leaving governments racing to avoid a total meltdown.

The organization has pledged to use its $1 trillion lending capacity to aid nations through the health crisis, but Georgieva emphasized the importance of nations getting ahead of the economic damage. Major economies have already unleashed trillions of dollars in stimulus and central bank easing, but rampant aid needs to be kept in check for long-term recovery, she added.

“It is the time that governments should spend as much as they can afford and more, but keep the receipts. We don’t want to lose accountability and transparency during this crisis,” Georgieva said.

Even as the virus runs rampant around the globe, some nations hit hardest by the pandemic are already planning for economic reopening. President Donald Trump revealed details of the US’s reboot on Thursday evening, including a three-phase plan to be followed at governors’ discretion.

Yet widespread testing is needed before any reboot can take place, Georgieva said. A virus-ravaged nation is unlikely to see an upswing in consumer confidence, and a premature reopening would place significant strain on already hammered health care operations.

“Saving lives and saving livelihoods go hand in hand with stopping the pandemic,” the managing director added. “We simply cannot restart the economy to the fullest, and without restarting the economy, finance ministers are not going to have the revenues they need, including for their health services.”