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"The Great Lockdown"

Image via Adam Nieścioruk on Unsplash

The Great Lockdown. That's what the International Monetary Fund is now calling the current economic downturn as a result of the coronavirus.

Saying that the "magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes," the IMF believes it will end up being the worst economic downturn since the Great Depression and far worse than the Global Financial Crisis.

The IMF now projects global growth to contract by 3% in 2020. That's a significant change from the 3.3% increase in global growth the IMF was projecting in January.

"It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago," Gita Gopinath, the IMF’s chief economist, said.

The IMF appears to be in the "V-shaped recovery" camp as it raised its 2021 growth forecast to 5.8%. Despite predicting 2021 growth of 3.4% in January, the revised forecast now comes from a lower base.

The IMF's 2021 forecast is dependent on a lot of assumptions, such as the coronavirus outbreak fading in the second half of 2020 and policy actions protecting against bankruptcies, financial strains and job losses being effective.

"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 said.

The IMF believes the combined loss to global GDP in 2020 and 2021 as a result of the coronavirus could be about $9 trillion, which is greater than the economies of Germany and Japan combined.

The effects of the coronavirus on the economy will be felt globally. According to the IMF, income per capita will decline in more than 170 countries. The IMF is forecasting growth to contract by 6.1% in developed economies, while emerging markets and developing economies are projected to contract by 1%.

In an interesting comparison, the IMF says "courageous actions of doctors and nurses need to be matched by policymakers all over the world." The IMF calls on the fiscal, monetary, and financial policies undertaken by policymakers to continue through the "containment phase."

Only after that point should policymakers undertake actions for the "recovery." Some actions suggested by the IMF include repairing balance sheets in the private and public sector, fiscal stimulus, moratoria on debt repayments and debt restructuring.

We now wait for the IMF's next World Economic Outlook report for when they likely slash all of these estimates again and call for policymakers to undertake "courageous actions" to save the global economy.

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