As the novel coronavirus continues to spread across the world, most economic activities are being halted, increasingly raising the prospects of a global economic recession in 2020, analysts have predicted.
According to the latest forecast by the International Monetary Fund (IMF), the recession could be worse than the one triggered by the global financial crisis of 2008-2009, but world economic output should recover in 2021.
Kristalina Georgieva, the IMF’s Managing Director said the outlook for global growth for 2020 it is negative.
"A recession at least as bad as during the global financial crisis or worse. But we expect recovery in 2021,” she said on Monday, March 23.
Georgieva issued the new outlook after a conference call of finance ministers and central bankers from the Group of 20 of the world’s largest economies, who she said agreed on the need for solidarity across the globe.
"The human costs of the coronavirus pandemic are already immeasurable, and all countries need to work together to protect people and limit the economic damage,” Georgieva said.
Already, economies across the world are struggling, production activities have decelerated, hotel and restaurants are feeling the pinch, travel and tourism industries have no clue of whether the situation will ever be turned around, and stock markets have tumbled enormously.
Earlier this month, the IMF warned that 2020 world growth would be below the 2.9 per cent rate seen in 2019 but stopped short of predicting a recession.
Georgieva welcomed the fiscal actions many countries have taken to boost their health systems and protect affected workers and firms.
"We welcome the moves of major central banks to ease monetary policy. These bold efforts are not only in the interest of each country, but of the global economy as a whole,” she said
In Rwanda, for instance, the Central Bank issued Rwf50 billion package to shore up the economy.
Such a package would enable banks with liquidity challenges to easily access cash, which they would then lend to companies struggling to operate.
The Bank also said it would buy back treasury bonds to shore up liquidity in the economy.
Local commercial banks in Rwanda have since devised strategies to support the economy in the wake of the pandemic.
The raft of interventions that have since been rolled out include easing loan repayment conditions for borrowers whose income have been severely affected by the virus.
However, Georgieva said "even more will be needed, especially on the fiscal front.”
She suggested that advanced economies are generally in a better position to respond to the crisis, but many emerging markets and low-income countries face significant challenges.
"They are badly affected by outward capital flows, and domestic activity will be severely impacted as countries respond to the epidemic,” the IMF boss noted.
According to IMF, investors have already removed $83 billion from emerging markets since the beginning of the crisis, the largest capital outflow ever recorded.
Other experts
The World Economic Forum asked experts from the United States and the European Union whether they agreed or disagreed that while the mortality of COVID-19 proves to be limited, it is likely to cause a major recession, and the majority agreed it is likely.
Over 40 per cent of respondents believe the COVID-19 outbreak will cause a major recession.
Almost 50 per cent of respondents said that reduced spending would have bigger economic effects than disruption to supply chains or illness-related reductions in workforces.
Likelihood of a major recession
On the first statement on whether there will be a major recession, weighted by each expert’s confidence in their response, 19 per cent of the US panel strongly agreed, 44 per cent agreed, 31 per cent were uncertain, and only 8 per cent disagreed.
Among the European panel, there was a bigger majority agreeing that a major recession is likely: 48 per cent strongly agreed, 34 per cent agreed, 13 per cent were uncertain, and 4 per cent disagreed.