IMF warns of deepest economic plunge since 1930s

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IMF warns of deepest plunge since 1930s

The loss in global economic output caused by the coronavirus pandemic will “dwarf” that of the 2008 financial crisis, the IMF warned today, forecasting the worst contraction since the Great Depression of the 1930s.

Most economies will shrink by 5 per cent, even after a potential sharp recovery in 2021, the fund said. World output will decline by 3 per cent this year, more than six percentage points down from the IMF growth forecast of 3.3 per cent made in late January. Public finances will be shredded, unemployment will rise sharply and in 90 per cent of the IMF’s 189 member countries incomes per person will fall.

Bar chart of Annual change in GDP (%) showing IMF growth forecasts

It is emerging economies, however — with neither the necessary health or economic resources — that will suffer the most, the IMF acknowledged.

Yesterday it announced a write-off of $214m in debt for the world’s poorest countries. It has also backed efforts by the G20 group of nations to reach a deal on a much broader suspension of debt payments hanging over low-income nations — a plan that received a boost today when G7 finance ministers and central bank governors endorsed the idea.

Debt crises in the developing world — alongside high levels of corporate indebtedness and weaknesses in the investment industry — could also expose “cracks” in the global financial system, according to a separate IMF report. 

Martin Wolf, the FT’s chief economics commentator, argues against “negative-sum economic nationalism,” making a plea for richer countries to help their poorer counterparts. “We must remember above all that in a pandemic, no country is an island. We do not know the future. But we do know how we should try to shape it. Will we? That is the question. I greatly fear our answer.” 


The world’s diamond sector has ground to a halt because of the exodus of 200,000 migrant workers from Surat in India — the global hub of diamond manufacturing — to their rural hometowns. India processes 90 per cent of the world’s stones.

The US Federal Reserve decision to help states and large cities but not smaller localities with emergency funding is facing strong criticism. Some say the plan — purchasing up to $500bn of short-term debt directly from states, counties with at least 2m residents and cities with a population of at least 1m — fails to recognise the role that small municipalities can play in keeping people employed. Some believe the Fed will intervene further if outflows from municipal funds pick up again or if issuers are unable to sell new debt.

Line chart of 10-year municipal debt yields, % showing Why the Fed stepped in to aid a $4tn market

Mohamed El-Erian, chief economic adviser at Allianz and an FT contributing editor, says markets and economists are far too bullish about the prospects for global economic recovery. They have failed to recognise the severity of the shutdown, an inherently messy restart, and consequent changes to the post-crisis landscape. The US earnings season will show how big companies remain in the dark on what lies ahead, he writes. A decisive rebound will only come with firm medical progress.


Early announcements in the US earnings season provided plenty of evidence of the effects of the pandemic. JPMorgan, the US’s biggest bank, reported a fall in profits of 69 per cent in the first quarter as it prepared for a “fairly severe recession” by ramping up loan loss provisionsWells Fargo, where profits fell 90 per cent, did the same. Johnson & Johnson, the drug and consumer products group, managed to raise its dividend but cut its guidance for the year. 

Column chart of Annual change in S&P 500 earnings per share (%) showing Analysts forecast sharp fall in US earnings this year

GlaxoSmithKline and Sanofi, two of the world’s biggest vaccine makers, said they were co-operating on a vaccine for Covid-19 that could be on the market in the next 12 to 18 months. The “unprecedented” partnership adds to efforts from groups such as Johnson & Johnson and Moderna in the race for a vaccine. Watch our video interview with Bill Gates on the roles of government and the private sector in fighting the virus and building up manufacturing capacity for a potential vaccine.

Global economy

China reported a modest rebound in trade in March but officials stuck with a cautious tone, recognising that prime export markets in Europe and US remained in quarantine. Separately, French carmaker Renault pulled out of its joint venture with Dongfeng, the most prominent part of its Chinese business, after disappointing sales compounded a miserable year for the parent company, which saw its profits wiped out. 

Thirty-day ocean journeys for goods from China to the US west coast were once deemed too slow; now they are too rushed as economic lockdowns drain demand for the incoming goods. “Slow steaming” means containers essentially become “floating storage” devices. As soon as shipments arrive, it is up to the importer to pay warehousing and transport fees, so the slower they get to target markets the better, because there may be nowhere for them to go.

The Office for Budget Responsibility, the UK’s fiscal watchdog, said the country faced a 35 per cent drop in output in the second quarter if the current lockdown remained in place for three months. The public finances also face a huge hole because of the collapse in tax revenues and the cost of government emergency measures.

Chart of UK GDP growth from 1910, showing how unprecedented the OBR forecast for the impact on the UK economy is, with a bigger fall and bigger recovery than in any part of the 20th century

The essentials

Pollution is dropping fast all over the world with countries in lockdown. In Venice, the waters of the canals are running clear because boats are no longer churning up the mud. In the centre of London, the sound of birdsong is audible because traffic noise has all but stopped. Once nations look to kick-start their economies, however, policy commitments on climate change could fall by the wayside, write Leslie Hook and Aleksandra Wisniewska in our Big Read. 

Charts of TomTom congestion data showing how roads are emptying in major cities

Moscow has introduced digital permits to regulate movements around the city, reports Henry Foy, Moscow bureau chief. There are alarming signs that the virus is spreading across the country, reflected in President Vladimir Putin’s descriptions of the outbreak moving from “under control” to “changing for the worse”.

US president Donald Trump has been touting hydroxychloroquine to treat Covid-19, while India has recommended the malaria drug to its healthcare workers. Scientists concede there may be some beneficial effect but are wary of recommendation before they see trial results on safety and efficacy, reports Hannah Kuchler, US pharma and biotech correspondent.

The US bailout law passed last month throws a lifeline to those Americans forced to skip their mortgage payments. The intricacies of the US mortgage system mean, however, that someone still has to replace the missing money. Read our explainer on the workings of the machine.

Final thought

Zeinab Badawi, the Sudanese-British television and radio journalist, writes for our Coronavirus Diaries on the death of her cousin, Adil El Tayar, the first UK hospital doctor to die of Covid-19. How fair is it, she writes, that doctors who have trained in countries such as Sudan at great expense should end up working permanently in wealthier countries? “It’s a reminder that richer nations should give something back.”

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