World Bank: Largest downturn since 1940s

Martin Crutsinger

The World Bank says 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 its updated Global Economic Prospects report, the World Bank projected that global economic activity will shrink by 5.2 per cent this year, the deepest recession since a 13.8 per cent global contraction in 1945-46 at the end of World War II.

The 5.2 per cent 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.

Then, the economies of many war-torn countries were devastated and the US and other nations demobilised after massive defence build-ups.

Because of the steep contraction, the amount of income per person is expected to fall sharply, with more than 90 per cent of emerging markets and developing countries seeing per capita incomes declining.

For all countries, the drop in per capital incomes is expected to average 6.2 per cent, much larger than the 2.9 per cent 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 per cent 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 per cent this year.

For the US, the updated World Bank forecast is for GDP to fall seven per cent this year, before growing 3.9 per cent in 2021.

The International Monetary Fund in April projected a drop in global output of three per cent 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 one per cent but rebound to 6.9 per cent in 2021.

For the 19 European countries who use the euro currency, the World Bank projected a drop of 9.1 per cent this year followed by growth of four per cent 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.