Britain’s economy is set to plunge by 10.2% in 2020 and global activity will take a hit of more than 12 trillion US dollars (£9.6 trillion) from the coronavirus pandemic by the end of 2021, the International Monetary Fund (IMF) has warned.
In an update to its already grim set of forecasts in April, the IMF said it now expects the global economy to contract by 4.9% in 2020 compared with the 3% it predicted two months ago.
It cautioned over a “catastrophic hit to the global labour market” and said it will likely take two years for worldwide GDP to return to pre-Covid-19 levels.
Gita Gopinath, the IMF’s economic counsellor, said: “The Covid-19 pandemic pushed economies into a Great Lockdown, which helped contain the virus and save lives, but also triggered the worst recession since the Great Depression.
“Over 75% of countries are now reopening at the same time as the pandemic is intensifying in many emerging market and developing economies.
“Several countries have started to recover.
“However, in the absence of a medical solution, the strength of the recovery is highly uncertain and the impact on sectors and countries uneven.”
Ms Gopinath added that the IMF expects living standards to drop in more than 95% of countries this year as a result of the pandemic.
She cautioned central banks and governments against withdrawing emergency support even as the recovery appears to take hold.
She said: “Policymakers should remain vigilant and policies will need to adapt as the situation evolves.
“Substantial joint support from fiscal and monetary policy must continue for now, especially in countries where inflation is projected to remain subdued.”
The IMF said the UK will be among the hardest-hit of the advanced economies, with its projected 10.2% contraction in gross domestic product (GDP) worse than that of the US, Germany, Japan and Canada.
It is set to match the GDP plunge of the euro area, though, with France, Italy and Spain expected to suffer falls of nearly 13%, according to the IMF’s world economic outlook update.
The bounce back will also be slower than first hoped, with the IMF projecting the UK economy to grow by 6.3% in 2021 and the world economy by 5.4%.
The IMF had expected the UK economy to shrink by 3.7% this year and to rise by 2.3% in 2021 in its April forecast.
But it said there were some “bright spots”, with financial market conditions having eased thanks to swift emergency interest rate cuts and unprecedented quantitative easing action around the world.
There are still some risks to global financial stability, it said, with debt levels expected to reach the highest level in recorded history in relation to GDP across all economies.