UN forecasts pandemic to shrink world economy by 3.2%

People walk past a closed clothing store in Barcelona, Spain, May 13, 2020. (AP)
Short Url
Updated 13 May 2020

UN forecasts pandemic to shrink world economy by 3.2%

  • UN says global economic output expected to slash by nearly $8.5tn over next 2 years

UNITED NATIONS: The United Nations forecast Wednesday that the COVID-19 pandemic will shrink the world economy by 3.2% this year, the sharpest contraction since the Great Depression in the 1930s.
The UN’s mid-year report said the novel coronavirus is expected to slash global economic output by nearly $8.5 trillion over the next two years, wiping out nearly all gains of the last four years.
In January, before COVID-19 became a pandemic, the UN had forecast a modest acceleration in growth of 2.5% in 2020.
But UN chief economist Elliott Harris told a news conference launching the report that the global economic outlook “has changed drastically” since then, with the pandemic’s death toll climbing toward 300,000.
“With the large-scale restrictions of economic activities and heightened uncertainties, the global economy has come to a virtual standstill in the second quarter of 2020,” he said. “We are now facing the grim reality of a severe recession of a magnitude not seen since the Great Depression.”
The 3.2% contraction in the global economy forecast by the UN is slightly higher than the 3% plunge forecast by the International Monetary Fund in mid-April.
The IMF forecast that the global economy will rebound in 2021 with 5.8% growth though it said prospects next year are clouded by uncertainty. The UN forecast more modest 3.4% growth in 2021.
The United Nations World Economic Situation and Prospects report also forecast a 15% contraction in world trade in 2020 as a result of sharply reduced global demand and disruptions in global supply chains.
The report said the pandemic is “exacerbating poverty and inequality,” with an estimated 34.3 million people likely to fall below the extreme poverty line of $1.90 a day in 2020 — 56% of them in Africa.
It said an additional 130 million people may join the ranks of people living in extreme poverty by 2030, dealing a “huge blow” to global efforts to eradicate extreme poverty and hunger by the end of the decade.


Analysts urge Canada to focus on boosting the economy

Updated 06 July 2020

Analysts urge Canada to focus on boosting the economy

  • Canada lost one of its coveted triple-A ratings in June when Fitch downgraded it for the first time

TORONTO: Canada should focus on boosting economic growth after getting pummeled by the COVID-19 crisis, analysts say, even as concerns about the sustainability of its debt are growing, with Fitch downgrading the nation’s rating just over a week ago.

Canadian Finance Minister Bill Morneau will deliver a “fiscal snapshot” on Wednesday that will outline the current balance sheet and may give an idea of the money the government is setting aside for the future.

As the economy recovers, some fiscal support measures, which are expected to boost the budget deficit sharply, could be wound down and replaced by incentives meant to get people back to work and measures to boost economic growth, economists said.

“The only solution to these large deficits is growth, so we need a transition to a pro-growth agenda,” said Craig Wright, chief economist at Royal Bank of Canada. The IMF expects Canada’s economy to contract by 8.4 percent this year. Ottawa is already rolling out more than C$150 billion in direct economic aid, including payments to workers impacted by COVID-19.

Further stimulus measures could include a green growth strategy, as well as spending on infrastructure, including smart infrastructure, economists said. Smart infrastructure makes use of digital technology.

“We have to make sure that government spending is calibrated to the economy of the future rather than the economy of the past,” Wright said.

Canada lost one of its coveted triple-A ratings in June when Fitch downgraded it for the first time, citing the billions of dollars in emergency aid Ottawa has spent to help bridge the downturn caused by COVID-19 shutdowns.

Standard & Poor’s, Moody’s and DBRS still give Canadian debt the highest rating. At DBRS, Michael Heydt, the lead sovereign analyst on Canada, says his concern is about potential structural damage to the economy if the slowdown lingers too long.

Fiscal policymakers “need to be confident that there is a recovery underway before they start talking about (debt) consolidation,” Heydt said.

Fitch expects Canada’s total government debt will rise to 115.1 percent of GDP in 2020 from 88.3 percent in 2019.

Royce Mendes, a senior economist at CIBC Capital Markets, said the economy still needs more support.

“Turning too quickly toward austerity would be a clear mistake,” he said.