COVID-19 Likely to Reduce Global GDP by Almost One Percent in 2020
The global economy could shrink by almost one percent this year, 0.9 percent, due to the COVID-19 pandemic, instead of growing a projected 2.5 percent, according to a briefing issued by the United Nations Department of Economic and Social Affairs (DESA).
By comparison, the world economy contracted by 1.7 per cent during the global financial crisis in 2009.
World output could contract further if restrictions on economic activity extend to the third quarter of the year and if fiscal responses fail to support income and consumer spending.
Growing restrictions on the movement of people and lockdowns in Europe and North America are hitting the service sector hard, particularly industries that involve physical interactions such as retail trade, leisure and hospitality, recreation and transportation services. Collectively, they account for more than a quarter of all jobs in these economies. As businesses lose revenue, unemployment is likely to increase sharply, transforming a supply-side shock to a wider demand-side shock for the economy.
The adverse effects of prolonged restrictions on economic activities in developed economies will soon spill over to developing countries via trade and investment channels. A sharp decline in consumer spending in the E.U. and the U.S. will reduce imports of consumer goods from developing countries. In addition, global manufacturing production could contract significantly, amid the possibility of extended disruptions to global supply chains.
Developing countries, particularly those dependent on tourism and commodity exports, face heightened economic risks. The sudden stop in tourist arrivals will hurt the tourism sector in small island developing States that employs millions of low-skilled workers. And the decline in commodity-related revenues and a reversal of capital flows are increasing the likelihood of debt distress for many commodity-dependent economies. Governments may be forced to curtail public expenditure at a time when they need to ramp up spending to contain the pandemic and support consumption and investment.
The pandemic is disproportionately hurting millions of lower-wage workers in service sectors, who often lack labor protections and work in close physical proximity to others. Without adequate income support, many will fall into poverty, even in most developed economies, worsening already high levels of income inequality. The effect of school closures could make the educational divide more pronounced, with possible long-term consequences.
The report finds that as the COVID-19 pandemic worsens, deep-seated economic anxiety, fueled by slower growth and higher inequality, is increasing. Even in many high-income countries, a significant proportion of the population do not have enough financial wealth to live beyond the national poverty line for three months. In hard-hit Italy and Spain, for instance, an estimated 27 percent and 40 percent of the population, respectively, do not have enough savings to allow themselves not to work for more than three months.