The £7 trillion cost of the Great Lockdown: IMF warns slump will be worst since the Great Depression of the 1930s
The economic slump from the deadly coronavirus will be the worst since the Great Depression of the 1930s, the International Monetary Fund (IMF) has warned.
The pandemic will result in a fall in global output of more than £7trillion this year and next.
That lost wealth is greater than the economies of Japan and Germany combined and more than three times as big as the UK economy, which is worth around £2trillion.
Warning: Top IMF economic adviser Gita Gopinath (pictured) and her colleagues believe the world economy will shrink 3 per cent this year
In the latest issue of its twice-yearly World Economic Outlook, the IMF predicts a 6.5 per cent fall in output for the UK this year, followed by a rebound to 4 per cent growth in 2021.
The terrifying prognosis from the Washington DC-based fund comes alongside an even more gruesome picture painted by the Office for Budget Responsibility, the independent body that monitors the Government’s handling of Britain’s public finances.
In its scenario, the UK economy falls 35 per cent in the second quarter of this year, government borrowing balloons and unemployment soars to 10 per cent, with more than 2m Britons joining the dole queue.
Both reports will add to the pressure on politicians to produce a strategy to escape from an increasingly costly lockdown that could inflict lasting scars on the economy.
The IMF is forecasting ‘The Great Lockdown’ pain will far outstrip the credit crisis of 2008-09.
Until now, the recession triggered by the banking meltdown of a dozen years ago had been the biggest downturn in the post-Second World War period.
The IMF forecasts that the US economy, the biggest in the world, will perform better than the UK, shrinking by 5.9 per cent.
Britain is not expected to suffer as much as Italy and Spain, whose economies are likely to contract by 9 per cent and 8 per cent respectively.
The euro area as a whole will see a decline of 7.5 per cent this year, the IMF said. But the expected rebound in the UK is also forecast to be weaker than for European rivals.
The eurozone is tipped to see growth of 4.7 per cent in 2021, with Germany, its leading economy, on 5.2 per cent.
‘The magnitude and speed of collapse in activity… is unlike anything experienced in our lifetimes,’ said Gita Gopinath, the fund’s top economic adviser.
‘This is a crisis like no other. There is substantial uncertainty about its impact on people’s lives and livelihoods.’
China, where the pandemic began, is forecast to see a fall in growth to 1.2 per cent this year from 6.1 per cent in 2019, and to hit 9.2 per cent in 2021.
Gopinath and her colleagues believe the world economy will shrink 3 per cent this year.
She urged governments to continue support to keep struggling businesses and households afloat, which so far amount to $8trillion (£6.4trillion) of help, including the UK’s measures.
Once lockdown measures start to be lifted, governments should give firms incentives to re-employ staff and to offer relief on debts.
If the pandemic is brought under control in the second half of the year and governments avert large-scale bankruptcies and job losses, then global growth could rebound in 2021 to 5.8 per cent.
That would still be far below the level previously predicted, with around $9trillion of lost output.
Researchers at Capital Economics also produced a gloomy forecast – that the economy will be about 5 per cent, or £100billion, smaller at the end of 2022 due to the pandemic. Total losses this year and the following two will be £500billion.