World economy to face deepest recession since 1945-46

 Biggest fall  in the per capita incomes since 1870 is expected 

In an updated "Global Economic Prospects,'' the World Bank projected that global economic activity will shrink by 5.2% this year, the deepest recession since a 13.8% global contraction in 1945-46 at the end of World War II. The 5.2% estimate for a decline in global output is 7.7 percentage-points more severe than the World Bank's January estimate that the world economy would grow by a modest 2.5% this year.

The 5.2% downturn this year will be the fourth worst global downturn over the past 150 years, exceeded only by the Great Depression of the 1930s and the periods after World War I and World War II when many the economies of many war-torn countries were devastated and the United States and other nations demobilized after massive defense buildups.

Because of the steep contraction, the amount of income per person is expected to fall sharply, with more than 90% of emerging market and developing countries seeing per capita incomes declining. For all countries, the drop in per capital incomes is expected to average 6.2%, much larger than the 2.9% fall during the 2009 financial recession.

The per capita income of most countries is going to contract in largest fraction since 1870.

Reflecting this downward pressure on incomes, World Bank economists said they expected the number of people in extreme poverty could grow by between 70 million and 100 million this year. The poor and the most vulnerable are hardest hit, adding to the deep inequality caused by growth that was often too slow to create jobs, higher medium incomes and better living standards said the report.

The report also pointed out that "the pandemic has laid bare the weaknesses of national health care and social safety nets in many countries. It is necessary to put in place social benefit systems that can provide an effective, flexible, and efficient safety net during disasters."

The World Bank said that the world is facing an unprecedented health and economic crisis that has spread with astonishing speed and will result in the largest shock the global economy has witnessed in more than seven decades. Millions of people are expected to be pushed into extreme poverty.

The health and human toll grows; the economic damage is already evident and represents the largest economic shock the world has experienced in decades. For emerging market and developing countries, many of which face daunting vulnerabilities, it is critical to strengthen public health systems, address the challenges posed by informality, and implement reforms that will support strong and sustainable growth once the health crisis abates.

Economic activity in advanced economies is anticipated to contract 7 percent in 2020 as domestic demand and supply, trade, and finance have been severely disrupted, the report said.

For the United States, the updated World Bank forecast is for GDP to fall 7% this year, before growing 3.9% in 2021. That estimate is similar to top forecasters for the National Association for Business Economics who forecast a 5.9% drop in for the U.S. this year.
For China, the world's second largest economy, the World Bank forecast growth will slow this year to a barely discernible 1% but rebound to 6.9% in 2021.
 For the 19 European countries who use the euro currency, the World Bank projected a drop of 9.1% this year followed by growth of 4% next year.

If there is a second wave of the virus that disrupts economic activity later this year, then growth this year will fall even farther and the rebound next year will be weaker, the World Bank analysts said.

Emerging market and developing economies (EMDEs), meanwhile, are expected to contract by 2.5 percent this year, "their first contraction as a group in at least sixty years," according to the report. The economic activity in Latin America and the Caribbean, in particular, could plunge by 7.2 percent in 2020.

Growth in East Asia and Pacific is projected to fall to 0.5 percent in 2020, the only region that could see growth this year, the report said. The Chinese economy is expected to grow by 1 percent this year.

The outlook for global economy is "highly uncertain and downside risks are predominant," including the possibility of a more protracted pandemic, financial upheaval, and retreat from global trade and supply linkages, the report noted.

A downside scenario could lead the global economy to shrink by as much as 8 percent this year, followed by a sluggish recovery in 2021 of just over 1 percent, with output in EMDEs contracting by almost 5 percent this year.

"This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges," said Ceyla Pazarbasioglu, World Bank Group vice president for Equitable Growth, Finance and Institutions.

"Our first order of business is to address the global health and economic emergency," Pazarbasioglu said. "Beyond that, the global community must unite to find ways to rebuild as robust a recovery as possible to prevent more people from falling into poverty and unemployment."

                                                                  Khalid Bhatti