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Recovery under way, but risks remain high.
The COVID-19 pandemic is the overriding story in this report: its dramatic impact on the world economy and on the economies of developed and developing countries alike. Some countries are managing to control the spread of the virus relatively well while others are seeing cases grow, largely due to mismanaged responses to the virus and challenges while reopening the economies. In addition, government responses to the pandemic have had a massive negative impact on countries’ deficits and debt levels. The world economy is expected to decline by around 5.0 per cent this year. Despite these setbacks, a recovery has started in most countries of the world, and we are looking for growth to accelerate in the second half of this year and into 2021.
The world economy will decline by around 5.0 per cent this year, with the bulk of this drop taking place in the second quarter.
COVID-19 is causing huge downside risks to the outlook. One of the biggest concerns is a huge rebound in cases in the Southern part of the United States. However, as economies have started to ease restrictions on social distancing and business closures, a recovery has started in most countries in the world. Growth will accelerate in the second half of this year and into 2021.
Many developing countries have been hit hard by the virus because of the downturn in many commodity prices like oil. While the price of oil has rebounded from April lows, it remains below levels required for many oil companies to break even. Emerging markets are experiencing worrisome exchange rate depreciations thanks to capital outflows. As in the developed world, deficits and debt levels have ballooned, but most emerging countries cannot borrow in global financial markets to the same extent as wealthier countries.
The United States mismanaged its response to COVID-19. President Trump initially downplayed the risk and then handed off control to the states, which have taken an inconsistent approach to controlling the virus. With states like Texas and Arizona forced to close retail outlets, bars, and gyms, third-quarter growth this year will likely be lower than our current projections.
The situation in Latin America is troubling as many countries—especially Brazil—are having difficulty controlling the spread of the virus. A large proportion of workers in Latin America work in the informal sector of the economy, where access to health care is limited.
As the EU economy gradually reopens, growth will pick up steam, and we expect a real GDP gain of 5.6 per cent in 2021. EU countries with a greater reliance on the travel industry, such as Spain, are struggling more than are countries with more diversified economies in the northern part of the EU.
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