The Pandemic’s Economic Carnage Looks Worse Than Expected
If you thought the economic toll wrought by the COVID-19 pandemic was only going to be horrendous, you may have been overly optimistic. A combination of voluntary behavior changes and government-imposed lockdowns that choked-off social and economic activity are now projected to have even worse consequences than economists initially feared. Life may start returning to normal sometime next year, but there will be lasting pain even if we avoid another wave of the virus.
“Global output is projected to decline by 4.9 percent in 2020, 1.9 percentage points below our April forecast, followed by a partial recovery, with growth at 5.4 percent in 2021,” Gita Gopinath, Director of the Research Department at the International Monetary Fund (IMF), wrote this week.
As depressing as the IMF’s numbers are, the Organization for Economic Cooperation and Development (OECD) is actually more pessimistic. The OECD predicts that, if we’re hit by only one wave of COVID-19, global economic activity will fall by 6 percent this year, with five years of income growth lost. A second wave of infections would drive world economic output down by 7.6 percent in 2020.
Despite the high number of infections in the United States, our economy may get off relatively lightly compared to some other countries. The IMF sees American economic activity dropping by 8 percent this year, compared to 10.2 percent for the Euro Area and the UK. Brazil’s economic activity is projected to drop 9.1 percent, Canada’s by 8.4 percent, Russia’s by 6.6 percent, and India’s by 4.5 percent. Japan is expected to take a 5.8 percent hit.
China, where the outbreak started, could actually eke out 1 percent of growth.
OECD projections, though more downbeat, largely bracket the IMF numbers depending on whether the world is hit once by the virus or suffers a second wave.
The reason for the grim and worsening economic outlook is both the virus an
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