WASHINGTON — The World Bank said Monday the world is facing an unprecedented health and economic crisis that has spread with astonishing speed and will result in the largest shock the global economy has witnessed in more than seven decades. Millions of people are expected to be pushed into extreme poverty.
In an updated “Global Economic Prospects,” the World Bank projected that global economic activity will shrink by 5.2% this year, the deepest recession since a 13.8% global contraction in 1945-46 at the end of World War II.
The 5.2% downturn this year will be the fourth worst global downturn over the past 150 years, exceeded only by the Great Depression of the 1930s and the periods after World War I and World War II when many the economies of many war-torn countries were devastated and the United States and other nations demobilized after massive defense buildups.
Because of the steep contraction, the amount of income per person is expected to fall sharply, with more than 90% of emerging market and developing countries seeing per capita incomes declining. For all countries, the drop in per capital incomes is expected to average 6.2%, much larger than the 2.9% fall during the 2009 financial recession.
Reflecting this downward pressure on incomes, World Bank economists said they expected the number of people in extreme poverty could grow by between 70 million and 100 million this year.
The 5.2% estimate for a decline in global output is 7.7 percentage-points more severe than the World Bank’s January estimate that the world economy would grow by a modest 2.5% this year.
For the United States, the updated World Bank forecast is for GDP to fall 7% this year, before growing 3.9% in 2021. That estimate is similar to top forecasters for the National Association for Business Economics who forecast a 5.9% drop in for the U.S. this year.
The International Monetary Fund in April projected a drop in global output of 3% this year but it is expected that figure will be lowered when the IMF releases its forecast update in coming weeks.
For China, the world’s second largest economy, the World Bank forecast growth will slow this year to a barely discernible 1% but rebound to 6.9% in 2021. For the 19 European countries who use the euro currency, the World Bank projected a drop of 9.1% this year followed by growth of 4% next year.
World Bank economists cautioned that their forecast was based on an assumption that the worst of the coronavirus outbreak was coming to an end and economies would pick up fairly quickly once governments begin to reopen.
If there is a second wave of the virus that disrupts economic activity later this year, then growth this year will fall even farther and the rebound next year will be weaker, the World Bank analysts said.