Trending Theme: Global Economy Predicted to Shrink by 5 Percent

The International Monetary Fund (IMF) is now predicting that the global economy will shrink by around 5%. This is an even more troublesome prediction than the IMF’s April prediction of a 3% reduction. To put the numbers into perspective, a 5% decline in the global economy could cost the world an estimated $12.5 trillion in output by the end of 2021. In comparison, the 2009 financial crisis shrank the global economy by 0.1%. The massive drop in economic output has resulted from a combination of factors including business closures, travel restrictions, reduced consumer spending, social distancing limitations, and new health and safety regulations.

The IMF predicts that the equivalent of 300 million full-time jobs could be lost in the second quarter of 2020 and that it might take around two years for the global economy to recover to its pre-pandemic state. Developed economies, like the United Kingdom, France, and Italy, are expected to experience the largest contractions. Thus, governments across the globe should refrain from removing financial supports plans too quickly, as such action would likely prove premature.

There is a chance that the global economy could recover quickly over the next few quarters, however, this appears very unlikely as people all over the world remain out of work and those who still have jobs are less likely to spend or invest their remaining funds. Furthermore, the coronavirus pandemic has exposed weaknesses in global supply chains resulting in countries like the United States seeing decreases in imports and exports. Reversing this trend could take years to accomplish.

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