Covid-19 Recession the Worst Since The Great Depression: IMF

IMF expects that the COVID-19 sanitary emergency will lead to the worst economic recession since the 1929 Great Depression. The organization expects that over 170 countries will experience economic contraction in 2020, a stark comparison against the 160 countries that were expected to experience economic growth back in January 2020.

In the January 2020, the World Economic Outlook expected the global economy to grow 3.3 percent in 2020, up from the 2.9 percent that approximately was registered in 2019. Moreover, IMF expected to see an increase in consumer spending which in turn would lead to improved business spending. However, Kristalina Georgieva, Managing Director of IMF, says conditions have dramatically change since.

“Just three months ago, we expected positive per capita income growth in over 160 of our member countries in 2020. Today, that number has been turned on its head: we now project that over 170 countries will experience negative per capita income growth this year,” said Georgieva in remarks prepared ahead of the IMF and World Bank Spring Meetings.

Georgieva warned that while the COVID-19 pandemic hit the entire world, countries in Africa, Asia and Latin America were at higher risk because of their weak health systems and their lack of possibilities of implementing social distancing given the existence of several densely populated cities.

Mexico will be no exception. According to the World Bank, the Mexican economy is expected to experience a 6 percent fall in 2020. Though the entire Latin American region will be hit, Mexico is expected to be among the four most economically hit countries, just behind Grenade and St. Lucia and at the same level as Ecuador. The chief economist for Latin America at the World Bank assured that the impacts of the COVID-19 pandemic in Latin America will depend heavily on the damages experienced by the US economy.

The bank recommended countries to follow three key actions in light of the pandemic. The first is to find a way to contain the pandemic, the second is to make more resources available for attending the economic emergency and the third is to design public policies destined to reduce the effects of the pandemic. IMF also presented a four-point plan that could help countries alleviate the effects of the pandemic: prioritize health spending, support companies and citizens by delaying tax payments and making available unemployment insurance, taking care of the financial system and planning for recovery, which is recommended to include fiscal stimuli.

Georgieva also said that IMF was created for times like these and that the organization was ready to deploy the US$1 trillion it had in lending capacity. Moreover, the IMF’s executive board has approved doubling its emergency funding to US$100 billion, to be able to meet the funding request of over 90 countries.

The measures proposed by the World Bank and IMF go in line with what some European and Asian countries have already done and also go in line with what has been proposed by the Mexican private sector.