Global economic cost of pandemic heading for $28 trillion, says IMF

IMF expects growth over the coming years to be considerably lower than expected before the pandemic, meaning total foregone output could add up to $28 trillion by 2025

Gita Gopinath, the IMF’s chief economist, said the world economy was experiencing the “worst crisis since the Great Depression” of the 1930s (AFP via Getty Images)

The world economy is facing a $28 trillion hit to economic activity over the next half decade from the coronavirus pandemic, hammering living standards and pushing up global poverty for the first time in two decades, according to the latest forecast from the International Monetary Fund.

In its latest World Economic Outlook the Fund estimates that international economic output will slump by 4.4 per cent over the course of 2020, easily the worst annual performance on modern record.

That’s an upward revision relative to the 5.2 per cent contraction it envisaged in June but the Fund stressed on Tuesday that the economic “scars” from the pandemic - in the form of lower investment by firms, the wasting of workers’ skills due to mass unemployment and lost schooling by children - would be long lasting.

The IMF expects growth over the coming years to be considerably lower than it had pencilled in before the pandemic, meaning total foregone output could add up to $28 trillion by 2025.

The Fund expects global GDP to be around $83.8 trillion this year.

Gita Gopinath, the IMF’s chief economist, said the world economy was experiencing the “worst crisis since the Great Depression” of the 1930s and that the lost output would be manifested in many countries as a “severe setback to the improvement in average living standards”.

She said that the damage would mean that extreme poverty in developing countries, which has been falling for two decades, would rise again in the coming years. 

"The poor are getting poorer with close to 90 million people expected to fall into extreme deprivation this year," she said.

Inequality was also likely to increase too, Ms Gopinath predicted, citing the disproportionate impact of the crisis on women and low-skilled workers.

Yet Ms Gopinath stressed that national politicians still retain the power to improve the bleak economic outlook through well-timed stimulus, effective health policies and international co-operation.

“It will take significant innovation on the policy front, at both the national and international levels to recover from this calamity,” she said. 

“The challenges are daunting. But there are reasons to be hopeful.”

The IMF is projecting that among developed countries Spain will suffer the most damage in 2020, with a 12.8 per cent GDP contraction, followed by Italy (-10.6 per cent) and then France and the UK (both -9.8 per cent).

In the US, where US politicians are in deadlock over plans to add to the $3 trillion stimulus package from earlier this year, the Fund is expecting a 4.3 per cent contraction this year.

In a clear sign the Fund thinks the US should continue with the higher Federal unemployment benefits to newly jobless workers Ms Gopinath stated that “Governments should continue to provide income support through well targeted cash transfers, wage subsidies, and unemployment insurance. “

In the developing world, the IMF thinks India will suffer the most in 2020 with a 10.3 per cent hit to GDP, followed by -9 per cent in Mexico and -8 per cent in Mexico.

Despite it being the first country to go into lockdown, the IMF now expects China to grow its economy by 1.9 per cent in 2020, reflecting the strong bank lending-driven recovery since the Spring.