The International Monetary Fund (IMF) did not mince words on Tuesday about its dire outlook for a coronavirus-ravaged world economy, and the manifold financial challenges facing low income countries.

“It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the financial crisis a decade ago,” IMF Chief Economist Gita Gopinath wrote in the foreword for the fund’s World Economic Outlook.

Titled “The Great Lockdown”, the IMF’s latest report card on the global economy described the coronavirus pandemic as a crisis “like no other” and predicted that world economic output will shrink by 3 percent this year, before experiencing a partial rebound next year.

But there was plenty of hedging to go along with that hard number.

“There is extreme uncertainty around the global growth forecast. The economic fallout depends on factors that interact in ways that are hard to predict,” the Fund warned, citing the pathway of the pandemic, the efficacy of containment measures, the intensity of supply chain disruptions, credit market freezes, commodity price impacts and changes in consumer behaviour.

Under the Fund’s best-case scenario, the world is likely to lose a cumulative $9 trillion in output over two years – greater than the combined GDP of Germany and Japan, said Gopinath.

The IMF’s forecasts assume that outbreaks of the novel coronavirus will peak in most countries during the second quarter and fade in the second half of the year, with business closures and other containment measures gradually unwound.

A longer pandemic that lasts through the third quarter could cause a further 3 percent contraction in 2020 and a slower recovery in 2021, due to the “scarring” effects of bankruptcies and prolonged unemployment. A second outbreak in 2021 that forces more shutdowns could cause a reduction of 5 to 8 percentage points in the global gross domestic product baseline forecast for next year, keeping the world in recession for a second straight year.

The new forecasts provide a sombre backdrop to the IMF and World Bank spring meetings, which are being held by videoconference this week to avoid contributing to the spread of the virus. The meetings normally draw 10,000 people to a crowded two-block area of downtown Washington.

IMF Managing Director Kristalina Georgieva said last week that some $8 trillion in fiscal stimulus being poured in by governments to stave off collapse was not likely to be enough. She is expected to argue this week for more debt relief for the poorest countries.

Emerging and developing economies

Emerging and developing economies face a litany of challenges from the coronavirus pandemic, ranging from underfunded healthcare systems and burdensome debt loads to high rates of employment. Oil producers are also shouldering a massive hit to state revenues from the recent crash in crude prices.

“For low income countries the challenges of this crisis are manifold,” said Gopinath at a videoconference briefing where she presented the report. “They have to deal with health crises with health systems that are just not as strong.”

Developing economies that are highly dependent on tourism will be hit particularly hard, while low income countries where large portions of the working population depend on daily wages to survive require immediate intervention.

“It is important to do whatever it takes and that includes cash transfers, digital payment systems to reach those working for daily wages,” Gopinath stressed.

For low income countries with high levels of debt, Gopinath stressed the importance for creditors to stand up and provide debt relief.

“This crisis is a truly exogenous shock,” she said.

The oil price collapse has added insult to the demand injury inflicted by coronavirus containment measures.

The IMF is predicting the price of oil will be slow to recover in 2020 and 2021. For oil exporters, that means lower revenues, belt-tightening and lower growth.

Economies in the Middle East and North Africa are expected to contract 3.3 percent overall this year.

Saudi Arabia’s growth is forecasted to contract 2.3 percent, with non-oil GDP shrinking 4 percent. The United Arab Emirates economy is seen contracting 3.5 percent.

Qatar’s economy is expected to contract 4.3 percent.

Of the Middle East and Central Asian countries, Iran’s economy is forecast to take the most serious pummelling with negative growth of 6.0 percent.

Other regions are expected to experience a slowdown or contraction in growth as well: sub-Saharan Africa (1.6 percent)—with growth in Nigeria and

South Africa expected to contract 3.4 percent and 5.8 percent, respectively.

Advanced economies hit hard

The global economy contracted 0.7 percent in 2009 – previously the worst downturn since the 1930s – according to IMF data.

Advanced economies now suffering the worst outbreaks of the virus will bear the brunt of the plunge in activity. The US economy will contract 5.9 percent in 2020, with a rebound to 4.7 percent growth in 2021 under the Fund’s best-case scenario.

Eurozone economies will contract by 7.5 percent in 2020, with hard-hit Italy seeing its GDP fall 9.1 percent and contractions of 8.0 percent in Spain, 7.0 percent in Germany and 7.2 percent in France, the Fund said. It predicted euro-area economies as a whole would match US growth of 4.7 percent in 2021.

China, where the coronavirus outbreak peaked in the first quarter and business activity is resuming with the help of large fiscal and monetary stimulus, will maintain positive growth of 1.2 percent in 2020. China’s economy is forecast to grow 9.2 percent in 2021, the IMF said.

India’s 2020 fiscal-year growth also is expected to stay in positive territory, but Latin American economies, which are still experiencing growing coronavirus outbreaks, will see a contraction of 5.2 percent.

The Fund called for central bank liquidity swap lines to be extended to more emerging market countries, which face a double problem of locked-down activity and tightening financial conditions caused by a massive outflow of funds to save-haven assets such as U.S. Treasuries.

It said some countries may need to turn to temporary limits on capital outflows.