COVID-19 pandemic will cost global economy $12 trillion

DUBAI: The COVID-19 pandemic will have cost the global economy $12 trillion by the end of next year, the International Monetary Fund predicted on Wednesday.

The pandemic was “a crisis like no other,” the contraction in the global economy would be significantly worse than it previously thought, and recovery was “uncertain,” the IMF said in a gloomy update to its World Economic Outlook.

Global gross domestic product is expected to fall by 4.9 per cent this year in what the Fund called “The Great Lockdown.”

Growth would jump next year by 5.4 per cent, but the IMF’s chief economist, Gita Gopinath, warned: “In the absence of a medical solution, the strength of the recovery is highly uncertain and the impact on sectors and countries uneven.”

There are some spectacular losers in the IMF forecasts. The Italian economy will contract by 12.8 per cent, the same as Spain, and France will be just behind with a 12.5 per cent decline. The UK economy will shrink by 10.8 per cent.

The US is predicted to contract by 8 per cent, while China — where the coronavirus was first detected — will actually grow by 1 per cent as its early measures against the outbreak take effect.

The Middle East and Central Asia will slow by 4.7 per cent. Saudi Arabia will suffer a contraction of 6.8 per cent this year before recovering with 3.1 per cent growth in 2021, the IMF predicted.

The Kingdom has been affected by volatility in global energy markets and an oil price collapse in April. The IMF forecast an average of $36.20 per barrel for oil this year, below the current market price, and only $37.50 in 2021, significantly lower than many oil experts estimate.

The Fund said policy countermeasures across the world had limited the economic damage and bolstered financial markets. “Sizable fiscal and financial sector countermeasures deployed in several countries since the start of the crisis have forestalled worse near-term losses,” it said

It added that “stability in the oil market has also helped lift sentiment,” with US benchmark West Texas Intermediate “in a stable range.”

However, the Fund also warned that financial and stock markets were not reflecting the pessimistic economic outlook, “raising the possibility that financial conditions may tighten more than assumed in the baseline.”

Although the IMF had signaled that it might downgrade its global projections, following negative assessments from other international organizations such as the World Bank and the OECD, financial markets took the report badly.

In New York, the S&P 500 Index fell 2.69 per cent to hover above the 3,000 point level. Brent crude, the global benchmark, lost more than 4 per cent but still stayed above $40 a barrel.