There is no crisis so bad that mismanagement cannot make it worse.
That was the one of the key messages Wednesday as the International Monetary Fund sharply downgraded an already dire global economic outlook.
“This is an unprecedented crisis, and this is indeed the worst recession since the Great Depression,” said IMF chief economist Gita Gopinath.
Titled A Crisis Like No Other, An Uncertain Recovery, the latest report from the Washington-based agency did not mince words. According to this latest global economic report, conditions are significantly worse than the fund projected just two months ago when the world began to feel the early effects of the COVID-19 lockdown.
“It was already the worst recession since the Great Depression in April when we had projected growth for 2020 to be at minus three per cent, but now, at minus 4.9 per cent, that is even more strongly true,” Gopinath said at a news conference, where she responded to reporters’ questions.
And while U.S. President Donald Trump’s administration moots new protectionist measures aimed at, among other things, Canadian aluminum and steel, Gopinath insisted that one of the most important ways of preventing things from getting worse is to keep trade flowing.
This week, the World Trade Organization warned that the collapse of trade due to COVID-19 could turn out to be worse than the decline that followed the 2008 economic meltdown.
Despite $11 trillion US in global government spending and new tax cuts, taking stimulus to a record 101 per cent of world GDP, some countries — including the U.S. — are also trying to think of ways to bring production home.
Many economists worry that on-shoring, as it is called, will merely raise costs and slow the global recovery. Worthy of specific mention by the IMF chief economist was U.S.-China trade. where she said an escalation of an already poor relationship could extend the global downturn.
In the current report, China is a relative winner. Despite a sharp decline in consumer spending, a new wave of investment following its lockdown means the economy is already showing signs of recovery. That may be a positive sign for the rest of us.
So far, according to the IMF, the economic hit has been closely aligned with how badly countries have been affected by the virus.The two biggest uncertainties for the future are whether individual countries can get their outbreaks under control and whether the world is hit by a second wave of the virus.
States see record cases
In the U.S., for example, several states are now seeing record numbers of cases. That includes California, where many thought the local pandemic had been nipped in the bud.
The IMF says getting the outbreak under control, along with the development of a vaccine, is crucial to allowing the global economy to rebound. But as many others — including Bank of Canada governor Tiff Macklem — have said, the process will be a long one.
The economic pain is unevenly spread both among and within countries hitting the poorest worst. While gross domestic product is the figure that makes the headlines, understanding the impact on countries and individuals requires a little more untangling.
In general, heavily industrialized countries such as Canada, Europe and the U.S. are subject to larger swings in economic growth. GDP is based on the dollar value of production, and in poorer parts of the world, with less industry and where subsistence makes up a bigger share of day to day activity, growth rates don’t have as far to fall in dollar terms. But smaller declines make a bigger difference in people’s lives.
According to the IMF league table, Canada will suffer a GDP decline of 8.5 per cent, slightly worse than the U.S.’s minus eight per cent. Countries in the euro area will see an average drop of more than 10 per cent. But high levels of government support mean most people are getting by despite the economic lockdown.
Buy now, pay later
And while now is the time that needs “all hands on deck,” said Gopinath, countries must already begin to consider how they will cover the cost of all that spending once the recovery takes hold.
There are already signs that the world’s poor will bear the brunt of the crisis especially in developing countries like Brazil and Mexico where the number of cases and deaths have soared and GDP has plunged by about 10 per cent, but where governments don’t have such deep pockets.
“We should also keep in mind that it’s not just the reduction in the growth rate, but for many countries that are starting out at lower per capita income levels, when you have a growth hit of even three or four percentage points,” Gopinath told her online audience, “the disaster that it causes to people’s lives is an order of magnitude bigger than a similar decline for an advanced economy.”
Follow Don on Twitter @don_pittis