Last updated December 3, 2020
The COVID-19 pandemic has generated far-reaching impacts on the global economy with International Monetary Fund (IMF) Managing Director Kristalina Georgieva declaring the crisis “the worst economic fallout since the Great Depression.” The global economy is expected to shrink by 4.4 percent. While a softer decline than the 4.9 percent forecasted in July, 2020, the pandemic’s global economic cost over the next two years could reach $11 trillion – larger than the combined economies of Japan and Germany – causing more economic devastation than the 2008 financial crisis.
- The World Trade Organization (WTO) now forecasts a 9.2% decline in global trade in 2020, a smaller decline than initially predicted in April.
- The COVID-19 pandemic has already erased 130 million jobs in the first quarter of 2020 and eliminated more than 400 million full-time jobs in the second quarter.
The global economic downturn will have a disproportionate impact on developing and emerging economies. They will take the hardest hit, according to Georgieva, as they have “less resources to protect themselves against this dual…health and economic crisis.” World Bank President David Malpass also warned that the global recession could set back decades of progress in developing countries, stating that the COVID-19 pandemic would lead to higher infant mortality rates and stunted growth for children.
- The United Nations Development Programme (UNDP) projects that developing countries will lose at least $220 billion in income.
- The economic impact of COVID-19 could push 100 million people into extreme poverty in 2020 – the first increase in global poverty since 1998, according to the World Bank.
- An additional 207 million people could be pushed into extreme poverty by 2030, due to the severe longterm impact of the coronavirus pandemic, bringing the total number to more than a billion, according to a new study from the UNDP.
Foreign direct investment flows – a critical source of financing for emerging and development economies – are projected to decline by 30 percent to 40 percent. Developing countries saw more than $100 billion flowing out from the region in March and April – more than three times the amount during the global financial crisis. The dramatic capital outflow has already led to major emerging market currencies depreciating by 15 percent and forcing people to pay more for imported goods.
- Moreover, given that a significant share of developing country’s public debt is mainly in U.S. dollars, the depreciation would make paying their debts more difficult. Developing countries debt burden may soar to between $2.6 trillion and $3.4 trillion over the next two years, according to the United Nations Conference on Trade, Investment and Development (UNCTAD).
- The decline in oil prices and tourism will further hamper emerging and developing markets’ access to foreign exchange to pay their debts. The coronavirus oil shock is projected to wipe out emerging markets’ oil and gas incomes by between 50 percent and 85 percent and shrink the tourism sector as much as 80 percent in 2020 –affecting many that have relied on commodity exports and tourism as their main source of incomes.
- Remittances – money that migrant workers send to their families at home – are estimated to fall by 20 percent in 2020.. Remittances are “a vital source of income for developing countries,” said World Bank President David Malpass, recognizing that they have become the second most important source of external finance to developing countries after foreign direct investment.
- The World Bank projects that sub-Saharan Africa will experience its first economic recession in 25 years, with the economy declining by 3.2 percent. With the African Union estimating a loss of up to 20 million African jobs, the pandemic will force between 5 million and 29 million people into extreme poverty— living on less than $1.90 a day. Remittances sent to Africa are expected to decline by 21 percent ($18 billion in 2020), erasing years of progress. By comparison, remittances to African countries decreased by 5 percent during the 2008 global financial crisis.For the first time in 60 years, East Asia’s economic growth is expected to stall – growing by a mere 0.5 percent in 2020 – and the pandemic could drive 11 million people into poverty.
- Latin America and the Caribbean will experience the worst economic contraction in the region’s history with the economy declining by 7.2 percent. With unemployment expected to reach 13.5 percent, the economic downturn could push 28 million people into extreme poverty.
Written by Sung Lee