The world is facing the deepest recession ever as millions lose jobs and see income dip due to the coronavirus.
Banks and political leaders are warning that the ‘new normal’ for millions is a lower standard of living and continued social distancing precautions until a COVID-19 vaccine emerges.
The International Monetary Fund has already forecast a huge drop in global output, while companies are shedding jobs, mothballing production lines and face closure.
The outlook for world GDP for 2020 is a 3% drop for all countries, but a 6.1% collapse for advanced economies.
Other nations that could see more than 5% contraction include the emerging economies of Brazil, Russia, and South Africa.
Acute economic fallout
“The risks for even more severe outcomes, however, are substantial. Effective policies are essential to forestall the possibility of worse outcomes, and the necessary measures to reduce contagion and protect lives are an important investment in long-term human and economic health.,” says the latest World Economic Outlook report from the IMF.
“Because the economic fallout is acute in specific sectors, policymakers will need to implement substantial targeted fiscal, monetary, and financial market measures to support affected households and businesses domestically.”
In the UK, Bank of England governor Andrew Bailey is ready for a doomsday scenario that will see output slashed by up to 14% by the end of the year.
He believes the downturn is unprecedented and consumers will stay away from shops, pubs, restaurants, and other leisure facilities even when lockdown restrictions are lift.
“Not all of the economic activity comes back. There is quite a sharp recovery. But we have also factored that people will be cautious of their own choice,” he said.
“They don’t re-engage fully, and so it’s really only until next summer that activity comes fully back.”
Brexit trade talk fears
Meanwhile, the European Union is expecting to plunge into recession with up to a 7.5% dip in GDP.
Paolo Gentiloni, the Commissioner for the Economy called it “a shock without precedent since the Great Depression”.
One sector facing major upheaval is tourism, with millions of vacations cancelled and no sign of when grounded flights may start and hotels open.
Experts are unsure when economies may return to somewhere near normal – the EU thinks at least two years and expects unemployment to rise in every member state.
Another worry is trade negotiations under Brexit.
An unsuccessful outcome could further hinder recovery on both sides of the channel, thrusting Britain and the EU deeper into recession if an agreement is not reached.