World economy to shrink 3.8pc in 2020, says IIF

Updated 12 Sep 2020

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Even though China’s economy grew by 3.2pc year-on-year during the second quarter, the infrastructure stimulus seen during the 2009 recession is absent this time around. — AFP/File
Even though China’s economy grew by 3.2pc year-on-year during the second quarter, the infrastructure stimulus seen during the 2009 recession is absent this time around. — AFP/File

KARACHI: The global economy is heading for a recession with GDP projected to shrink 3.8 per cent in 2020, substantially worse than the 0.4pc contraction during the 2009 global financial crisis, the Institute of International Finance (IIF) said in its latest report.

Contrary to the recovery in the aftermath of the 2009 global financial crisis, the recovery in the emerging markets from the Covid-19 shock will be “shallower and more difficult to navigate as a result,” it added.

“We forecast a deep recession this year, with global GDP contracting by 3.8pc. The recession we forecast in advanced economies is comparable with the 2009 experience. Instead, it is China and India that account for almost all of the weaker global growth picture.”

Even though China’s economy grew by 3.2pc year-on-year during the second quarter, the infrastructure stimulus seen during the 2009 recession is absent this time around, it added. Subsequently, global economic activity and the commodity prices have not received the jump-start they desperately needed or seen the last time around.

Meanwhile, India is experiencing a deep recession as Covid-19 lockdowns are expected to shrink the GDP sharply this year, in contrast to the expansion in 2009. India’s economy shrank 23.9pc during the quarter ending in June. Analysts fear the country could be heading for a recession if the rout continues in the third quarter of 2020.

Even before the Covid-19 shock, the country’s economy was off track. India’s economy grew by 3.1pc in the first quarter of 2020 ending in March — lowest in nearly a decade.

Subsequently, China and India have had the domino effect on the commodity-driven economies in South America and the geographically-linked Association of South East Asian (ASEAN) economies.

“These two things almost fully account for the deeper recession we are forecasting, with adverse knock-on effects to Latin America via the commodity channel and negative fall-out for the rest of Asia via trade linkages,” the IIF report said.

The GDP in the second quarter of 2020 shrank 11.5pc year-over-year across advanced economies, while it contracted by 10pc across emerging markets — excluding China and India due to their size, it added.

Published in Dawn, September 12th, 2020