Coronavirus to cause ‘worst economic fallout since the Great Depression’: IMF


Australia

The coronavirus pandemic will push the global economy into the deepest recession since the Great Depression, the head of the International Monetary Fund (IMF) says.

Key points:

  • IMF boss Kristalina Georgieva says there is no question 2020 will be an “exceptionally difficult” year
  • Emerging markets and low-income nations across Africa, Latin America and much of Asia are most at risk, she says
  • The 189-nation IMF and its sister lending organisation, the World Bank, will hold virtual meetings next week

IMF managing director Kristalina Georgieva said the world’s poorest countries would suffer the most if the COVID-19 fallout drove markets to their lowest levels since the 1930s.

“We anticipate the worst economic fallout since the Great Depression,” Ms Georgieva said, speaking ahead of next week’s virtual meetings of the 189-nation IMF and its sister lending organisation, the World Bank.

She said the IMF would release an updated world economic forecast on Tuesday that would show just how quickly the coronavirus outbreak had turned what had been expected to be a solid year of growth into a deep downturn.

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Just three months ago, the IMF was forecasting 160 nations would enjoy positive income growth on a per capita basis.

Now the expectation is more than 170 nations will have negative per capita income growth this year.

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Emerging markets and low-income nations across Africa, Latin America and much of Asia were at high risk, she said.

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“With weak health systems to begin with, many face the dreadful challenge of fighting the virus in densely populated cities and poverty-stricken slums, where social distancing is hardly an option,” Ms Georgieva said.

Investors have grown fearful of leaving their money in emerging economies that could be hit hard by a global recession.

As a result, capital outflows from emerging-market countries has totalled more than $US100 billion ($158 billion) over the past two months, more than three times larger than the same period at the start of the global financial crisis, Ms Georgieva noted.

In addition, countries that depend on exporting commodities have taken a double blow because of the steep fall in commodity prices.

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Another 6.6 million file for unemployment

Numbers released on Thursday by the US Government showed 6.6 million American workers applied for unemployment benefits last week, on top of more than 10 million in the two weeks before that.

That amounts to about one in 10 American workers — the biggest, fastest pile-up of job losses since the world’s largest economy began keeping records in 1948.

And still more job cuts are expected.

The US unemployment rate in April could hit 15 per cent, a number not seen since the tail end of the Great Depression.

Ms Georgieva said there was no question 2020 would be an “exceptionally difficult” year.

She said if the pandemic faded in the second half of the year, allowing the gradual lifting of containment measures and the reopening of the global economy, the IMF was forecasting a partial recovery in 2021.

“I stress there is tremendous uncertainty around the outlook,” she said.

“It could get worse depending on many variable factors, including the duration of the pandemic.”

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She said she and World Bank president David Malpass would pursue at next week’s virtual meetings an agreement to adopt a standstill on debt payments over the next year by the world’s poorest nations, freeing up money they could use for critical health needs.

She also said the IMF was prepared to commit its $US1 trillion in lending capacity to providing support to nations that needed help dealing with the pandemic.

“We are responding to an unprecedented number of calls for emergency financing from over 90 countries so far,” she said.

The IMF’s executive board agreed to double the loan levels it would provide from its emergency facilities that she said should allow the IMF to provide about $US100 billion in financing to low-income countries.

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