The global economic growth will contract by 3 per cent in 2020 due the impact that Covid-19 has exerted on countries, the International Monetary Fund (IMF) said on Tuesday as it released its latest forecast.

The latest projection is a revision of 6.4 percentage points from the previously projected forecast, to -3 percent.

The IMF predicted in its first World Economic Outlook report since the spread of coronavirus that the contraction will see the world experience the worst crisis since the Great Depression.

"This is a crisis like no other,” Gita Gopinath, the IMF’s Chief Economist said as she announced the latest forecast in a virtual press briefing on Tuesday, April 14.

Gopinath said the output loss associated with this health emergency and related containment measures likely dwarfs the losses that triggered the global financial crisis over a decade ago.

The aggregate loss to global gross domestic product over 2020 and 2021 from the pandemic crisis could be around $9 trillion, greater than the economies of Japan and Germany combined.

Advanced economies like those in the Euro zone, and the United States of America, are expected to be hit harder, while emerging and developing economies like China and India could register a relative rebound.

The US economy will contract by 5.9 per cent, while economies of Italy and Spain which have been hit harder by Covid-19, will contract by 9.1 per cent and 8 per cent, respectively.

Sub-Saharan Africa economies will register negative growth of 1.6 per cent, with Nigeria, one of the major oil exporters, as well as South Africa, expected to be hit the most.

South Africa currently dominates the continent in terms of active coronavirus cases.

Rwanda’s economy will particularly grow at 5.1 per cent this year from the previously forecasted growth of 8 per cent.

The nature of coronavirus outbreak differs strikingly from past triggers of downturns.

This is because infections reduce labor supply, quarantines, regional lockdowns, and social distancing — which are essential to contain the virus — curtail mobility, with particularly acute effects on sectors that rely on social interactions (such as travel, hospitality, entertainment, and tourism).

Workplace closures disrupt supply chains and lower productivity, layoffs, income declines, fear of contagion, and heightened uncertainty make people spend less, triggering further business closures and job losses.

Recovery plans

In a baseline scenario, which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound, the global economy is projected to grow by 5.8 percent in 2021 as economic activity normalizes.

"A partial recovery is projected for 2021, with above trend growth rates, but the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound,” Gopinath noted.

IMF economists suggest that recovery requires substantial targeted fiscal, monetary, and financial measures to maintain the economic ties between workers and firms and lenders and borrowers, keeping intact the economic and financial infrastructure of society.

For example, Gopinath said, in emerging markets and developing economies with large informal sectors, new digital technologies may be used to deliver targeted support.

Different governments across the world have responded to the outbreak with measures that support businesses with liquidity challenges.

In Rwanda, the National Bank of Rwanda announced in March a financial package of Rwf50 billion to help banks, which could later see businesses with cash flow challenges to access funds easily.

The IMF highlights that strong multilateral cooperation is essential to overcome the effects of the pandemic, including to help financially constrained countries facing twin health and funding shocks.

Different experts and analysts have suggested more serious and quick interventions to struggling businesses, especially small and medium sized businesses and those in the informal sector.