The International Monetary Fund Wednesday released a pretty downbeat economic forecast. It expects a nearly 5% contraction in global GDP this year – that’s 2% worse than the fund previously estimated. A number like that can sound a little abstract, especially on a global scale, so what does it look like?
Well, the world economy contracted by less than 1% in the Great Recession of 2008 and 2009. Ken Rogoff, professor of economics at Harvard and former chief economist at the IMF, said a 5% global contraction is “like a meteor hitting the earth. It is a massive number.”
The IMF said the global economy will contract as people around the world spend less because they’re stuck at home. Business activity will drop. And that means hundreds of millions of lost jobs – especially for low skilled workers.
“The Federal Reserve was calling near double-digit unemployment at the end of this year,” Rogoff said. “I think we could have double digit unemployment at the end of next year.”
Meanwhile, government debt will rise as countries borrow to prop up their economies.
Sebastian Mallaby, senior fellow for international economics at the Council on Foreign Relations, said that’s happening more in developed countries. Countries with emerging economies – India and Latin American countries – can’t afford to borrow enough to address the effects of the pandemic.
“Everything from hunger, to lack of access, to any kind of assistance from the health system – those kinds of problems are going to be way more acute in the emerging world,” Mallaby said.
A country’s case numbers will also affect how much pain a 5% contraction causes.
Jay Bryson, managing director and the chief economist for Wells Fargo’s Corporate and Investment Bank, said in Europe, cases aren’t rising like they are in the U.S.
“Later this year, depending on how things evolve here, Europe could potentially be growing faster than the United States,” Bryson said.
The IMF projects that the U.S. economy is likely to fare even worse than the global one.
It expects U.S. GDP to drop by 8%.
COVID-19 Economy FAQs
Will the federal government extend the extra COVID-19 unemployment benefits?
It’s still unclear. Congress and President Donald Trump are deciding whether to extend the extra $600 a week in unemployment benefits workers are getting because of the pandemic. Labor Secretary Eugene Scalia believes the program should not be extended, and White House economic adviser Larry Kudlow said the additional money is disincentivizing some workers from returning to their jobs. Democrats want to keep providing the money until January.
As states lift restrictions, are people going back to stores and restaurants?
States have relaxed their restrictions, and many of us have relaxed, too. Some people have started to make exceptions for visiting restaurants, if only for outdoor dining. Some are only going to places they trust are being extra cautious. But no one we’ve talked to has really gone back to normal. People just aren’t quite there yet.
Will surges in COVID-19 cases mean a return to lockdowns?
In many areas where businesses are reopening, cases of COVID-19 are trending upwards, causing some to ask if the lockdowns were lifted too soon, and if residents and businesses might have to go through it all again. So, how likely is another lockdown, of some sort? The answer depends on who you ask. Many local officials are now bullish about keeping businesses open to salvage their economies. Health experts, though, are concerned.
You can find answers to more questions here.
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