The coronavirus pandemic led to the furthest-reaching economic collapse globally since 1870, the World Bank said Monday.
In the organization’s latest Global Economic Prospects Report, it said the scale of the economic contraction will be worse than any recession in 150 years due to the number of countries affected, according to AFP.
“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” Ceyla Pazarbasioglu, World Bank Group vice president for equitable growth, finance and institutions, said.
Pazarbasioglu told reporters that between 70 million and 100 million people will end up in extreme poverty due to the recession, exceeding the previous estimate of 60 million, and that even as a rebound is expected by 2021, a potential second wave could hinder the recovery and trigger a “wave of defaults.”
Pazarbasioglu said the World Bank’s current worst-case scenario projected a contraction of up to 8 percent but said “given this uncertainty, further downgrades to the outlook are very likely.”
The current forecast is still better than the Great Depression, which resulted in a 14.5 percent contraction worldwide from 1930 to 1932. A downturn of nearly as much, 13.8 percent, occurred after the end of World War II.
The nature of the virus makes the risk of a continued downturn particularly high if authorities reimpose lockdowns due to a second wave, the report said. “Disruptions to activity would weaken businesses’ ability to remain in operation and service their debt,” it stated. This could raise interest rates for high-risk borrowers, and “with debt levels already at historic highs, this could lead to cascading defaults and financial crises across many economies,” it said.
Meanwhile, if the forecast of a 4.2 percent global recovery in 2021 proves accurate, “in many countries, deep recessions triggered by COVID-19 will likely weigh on potential output for years to come,” the report said.