The U.S. and global economies are expected to suffer their worst contraction since the Great Depression as countries remain on lockdown due to the coronavirus pandemic, the International Monetary Fund said in its latest economic outlook report.
The IMF now expects the global economy to contract 3.0%, down 6.3 percentage points from its January projection, before rebounding with 5.8% growth in 2021. It slashed the forecast for the U.S. by 7.9 percentage points to negative 5.9%, with a 4.7% expansion seen in 2021.
"This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis," wrote Gita Gopinath, economic counselor and director of the research department at the IMF.
The projected GDP decline for the U.S. this year would be the sharpest since the 8.5% and 12.9% economic contractions in 1930 and 1932, respectively, data from the U.S. Bureau of Economic Analysis showed.
Advanced economies are expected to contract 6.1% in 2020 followed by a 4.5% expansion in 2021. The eurozone and the U.K. economies are forecast to shrink 7.5% and 6.5%, respectively, in 2020, followed by an expansion of 4.7% and 4.0% in 2021.
Emerging market and developing economies are expected to contract 1.0% in 2020 before recovering with a 6.6% growth in 2021. The IMF estimates China's GDP growth at 1.2% and 9.2% for 2020 and 2021, respectively, while it expects India's GDP to expand 1.9% and 7.4% for the same time frame.
The IMF said the crisis is like no other, as it poses challenges for economic policymakers amid continued uncertainty and loss of output. Countries experiencing severe epidemics are forecast to shed about 8% of working days in the year, while other nations are expected to lose 5% of working days.
The IMF's forecasts are based on the assumption that the pandemic would subside in the second half, allowing for a gradual lifting of containment measures.
Despite a sharp downgrade, risks to the outlook are on the downside, according to the IMF. It warned that the outbreak "could prove more persistent than assumed in the baseline."
Uncertainty around the epidemic could also trigger risk-off episodes in financial markets, and tightening of financial conditions could lead to deeper contractions, the IMF further warned. "Scars left by reduced investment and bankruptcies may run more extensively through the economy," it added.