The Covid-19 pandemic is wreaking havoc on the world economy.

The global economic

outlook was already fragile prior to the outbreak of the coronavirus crisis. Initially, when the
outbreak emerged in China, it was thought that the negative impact on the global economy would
be small — mainly limited to the output contraction in China and its knock-on effect on global
supply chains, tourism, and commodity markets. However, with the rapid spread of Covid-19
across the world and the consequent imposition of containment measures and restrictions, all
countries are experiencing severe supply and demand shocks that are independent of their links
to global supply networks. In every country, the containment measures have adversely impacted
all sectors of the economy to varying degrees. Production has plummeted, investment plans are
being shelved, consumer spending has fallen sharply, and job losses have surged. Financial
market sentiment has deteriorated, foreign direct investment inflows are dropping, and emerging
market countries are experiencing large capital outflows. The global economy is now entering in
a recession which is likely to be far deeper than during the Global Financial Crisis in 2009.

Rise in Unemployment

In the week to 25 April, 3.8 million Americans made an unemployment claim – giving a

six-week total of around 30 million. It was, however, the fourth consecutive week of falls in
numbers of new claims. Payroll processor ADP says the US private sector shed more than 20
million jobs in April. The big question is how long those jobs will take to come back. The US
Congressional Budget Office predicts 15% of people could be unemployed by the third quarter
of this year – up from less than 4% in the first quarter. Japan’s unemployment rate is rising more
slowly than in other G7 economies like the US. In March, it was 2.5%, with 1.76 million
unemployed – an increase of 20,000 from the same month in 2019.However, job openings are at
their lowest level in three years, and there has been a sharp increase in numbers of people
requesting emergency loans to cover job losses and wage cuts.

There is more of a time lag on the UK’s official unemployment data than some other
nations. Its main statistics office shows employment at a record high and unemployment at
around 4%. However, KPMG forecasts this will rise to just under 9% during the lockdown
period. Almost have applied for the main benefit – Universal Credit – since the country’s
lockdown began. A quarter of the UK’s employed workforce have registered for the
government’s job retention scheme, which pays 80% of an employee’s wages. Predictions of job
losses are gloomy, particularly in the aviation sector, following the announcement of significant
redundancies by carriers including British Airways. Germany’s unemployment rate has risen far
less rapidly than countries such as the US. In part, this is because of a government scheme to
subsidize the wages of struggling employers and employees called the Kurzarbeit, or short-time
work programmed. By late April, it was helping more than 10 million people.

The unemployment rate in Canada in April was 13%, up 5.2 percentage points on March,
according to data from the country’s official statistics bureau. So far in the COVID-19
crisis, more than 7.2 million people have applied for emergency unemployment assistance.
More in France’s private sector are being supported by the state, through a scheme
called chonmage partial (partial employment or short-time working). “That’s more than one
employee out of two, and six companies out of 10,” French Labor Minister Muriel Painchaud
Painchaud told the country’s BFM Business radio.

However, unemployment is still up, rising in April by 373,000, bringing the proportion of

jobless to 5.8%.In March, the unemployment rate in Italy dropped to 8.4% – its lowest level for
almost nine years. The to 267,000 fewer people looking for work than in the month before, as the
unemployment rate measures active job-seekers. “Nobody must lose their job because of the
coronavirus,” Italian Economy Minister Roberto Gualtieri said. The government has pledged
around €75 billion euros of support for families and companies.

Factory Output

In addition to the substantial burden on healthcare systems, COVID-19 has had major
economic consequences for the affected countries. The COVID-19 pandemic has caused direct
impacts on income due to premature deaths, workplace absenteeism, and reduction in
productivity and has created a negative supply shock, with manufacturing productive activity
slowing down due to global supply chain disruptions and closures of factories. For example, in
China, the production index in February declined by more than 54% from the preceding month's
value. In addition to the impact on productive economic activities, consumers typically changed
their spending behavior, mainly due to decreased income and household finances, as well as the
fear and panic that accompany the epidemic. Service industries such as tourism, hospitality, and
transportation have suffered significant losses due to reduction in travel. The International Air
Transport Association projects a loss in airline revenue solely from passenger carriage of up to
$314 billion. Restaurants and bars, travel and transportation, entertainment, and sensitive
manufacturing are among the sectors in the U.S. that are the worst affected by the COVID-19
quarantine measures.

Global Trade

According to an October 6 forecast update, the World Trade Organization (WTO)

estimated that global trade volumes could fall by 9.2% in 2020.95 Global trade volumes are
projected to partially recover in 2021 by increasing at an annual growth rate of 7.2%. This
forecast reflects a marked revision from the WTO’s April 8, 2020 forecast that global trade
volumes could decline between 13% and 32% in 2020 as a result of the economic impact of
COVID-19, as indicated in Table 7. The updated forecast also indicates that the recovery in
global trade in 2021 could be noticeably slower than the WTO had projected in April, primarily
reflecting expectations of a slower recovery in global GDP in 2021. The WTO also estimated
that global merchandise trade fell by 21% in the second quarter of 2020, while some sectors were
affected more than others: trade in fuels and mineral products fell by 38%, while trade in
agricultural products fell by 5%.

In the first quarter of 2020, global exports and imports fell by 7.7% and 6.7%,
respectively, in volume terms and 10.4% and 8.6% in value terms, reflecting the global economic
impact of the pandemic, as indicated in Figure 6. In the second quarter, global exports and
imports dropped by 11.7% and 11.4%, respectively, in volume and by 13.4% and 14.2%, in
value terms. In the third quarter, however, export and import volumes increased by 15.7% and
13.1%, respectively, while export and import values increased by 20.6% and 18.3%,
respectively. Although the WTO has no comprehensive data on trade in services, it concluded
that the trend in trade in services likely matched that experienced in trade in merchandise goods.
The updated forecast also projects that global GDP could decline at
In its April forecast, the WTO presented two estimates of global growth, reflecting the high
degree of uncertainty concerning the length and economic impact of the pandemic. According to
the WTO, the more optimistic scenario assumed that trade volumes would recover quickly in the
second half of 2020 to their pre-pandemic trend, or that the global economy experiences a V-
shaped recovery. In comparison, the more pessimistic scenario assumed there would be a partial
recovery in global trade that lasted into 2021, or that global economic activity would experience
a U-shaped recovery. The updated forecast reflects the WTO’s estimate that global trade
volumes in 2020 will not fall by as much as it had projected under both of the scenarios in its
April forecast. The WTO concluded, however, that the impact on global trade volumes could
exceed the drop in global trade during the height of the 2008-2009 financial crisis

Annual GDP

The June 2020 Global Economic Prospects describes both the immediate and near-term
outlook for the impact of the pandemic and the long-term damage it has dealt to prospects for
growth. The baseline forecast envisions a 5.2 percent contraction in global GDP in 2020, using
market exchange rate weights—the deepest global recession in decades, despite the extraordinary
efforts of governments to counter the downturn with fiscal and monetary policy support. Over
the longer horizon, the deep recessions triggered by the pandemic are expected to leave lasting
scars through lower investment, an erosion of human capital through lost work and schooling,
and fragmentation of global trade and supply linkages.

Advanced economies as a group were forecast to experience an economic contraction in

2020 of 8.0% of GDP, with the U.S. economy also projected by the IMF to decline by 8.0%,
about four times the rate of decline experienced in 2009 during the financial crisis, as indicated
in Figure 5. The rate of economic growth in the Euro area was projected to decline by 10.2% of
GDP. Most developing and emerging economies were projected to experience a decline in the
rate of economic growth of 3.0%, reflecting tightening global financial conditions and falling
global trade and commodity prices. In contrast, China, and Indonesia were projected to
experience small, but positive rates of economic growth in 2020, while India’s rate of growth
was projected to decline by 4.5%. The IMF also argued that recovery of the global economy
could be weaker
 Every region is subject to substantial growth downgrades. East Asia and the Pacific will
grow by a scant 0.5%. South Asia will contract by 2.7%, Sub-Saharan Africa by 2.8%, Middle
East and North Africa by 4.2%, Europe and Central Asia by 4.7%, and Latin America by 7.2%.
These downturns are expected to reverse years of progress toward development goals and tip
tens of millions of people back into extreme poverty.

COVID-19 brought the global economy to a sudden stop, causing shocks to supply and
demand. Starting in January 2020, country after country suffered outbreaks of the new
coronavirus, with each facing epidemiological shocks that led to economic and financial shocks
as a consequence. How quickly and to what extent will national economies recover after the
pandemic has passed? This will depend on success in containing the coronavirus and on exit
strategies, as well as on the effectiveness of policies designed to deal with the negative economic
effects of the coronavirus. The impact of coronavirus on the global economy will extend beyond
2020. According to forecasts from the International Monetary Fund and World Bank, GDP per
capita at the end of 2021 is still expected to be lower than December 2019 in most countries.
Emerging markets and other developing countries, in addition to facing difficulties in dealing
with their own coronavirus outbreaks, have suffered additional shocks from abroad. In their
cases, the new coronavirus brought a perfect storm. One can foresee a post-coronavirus global
economy marked by higher levels of public and private debt, acceleration in digitization
processes, and less globalization.

 Macroeconomic and financial outcomes of the coronavirus have materialized in just three
weeks, in comparison to the three years this took for the 2008 financial crisis.
 Markets are down 35%, credit markets have seized up, and credit spreads have spiked to
2008 levels.
The shock to the global economy from COVID-19 has been both faster and more severe than the
2008 global financial crisis (GFC) and even the Great Depression. In those two previous
episodes, stock markets collapsed by 50% or more, credit markets froze up, massive
bankruptcies followed, unemployment rates soared above 10%, and GDP contracted at an
annualized rate of 10% or more. But all of this took around three years to play out. In the current
crisis, similarly dire macroeconomic and financial outcomes have materialized in three weeks.

Earlier this month, it took just 15 days for the US stock market to plummet into bear territory (a
20% decline from its peak) – the fastest such decline ever. Now, markets are down 35%, credit
markets have seized up, and credit spreads (like those for junk bonds) have spiked to 2008 levels.
Even mainstream financial firms such as Goldman Sachs, JP Morgan and Morgan
Stanley expect US GDP to fall by an annualized rate of 6% in the first quarter, and by 24% to
30% in the second. US Treasury Secretary Steve Mnuchin has warned that the unemployment
rate could skyrocket to above 20% (twice the peak level during the GFC).