The International Monetary Fund (IMF) anticipates the worst economic crisis since the Great Depression for the global economy due to the coronavirus pandemic. In its World Growth Outlook (WEO), Spain, only surpassed by Italy, is postulated as the country that will suffer most from the consequences of the COVID-19. This year’s contraction will more than double those experienced during 2009 and 2012.
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Eurozone economies are in distress
The team led by Gita Gopinath, the chief economist of the Washington-based institution, is projecting an 8% contraction in the Spanish economy as a whole in 2020. That is 9.6 percentage points less than estimated in its latest January estimate. A deep fall that both in the Eurozone and globally will only be exceeded by that of Italy, whose GDP will register a negative growth of 9.1% this year.
“This is a crisis like no other, where there is substantial uncertainty about its impact on people’s livelihoods. Much depends on the epidemiology of the virus, the effectiveness of containment measures and the development of therapies and vaccines,” Gopinath said at the presentation of the document as part of the spring meetings of the International Monetary Fund and the World Bank, which in this edition are being held virtually.
The document, dubbed by the IMF as the ‘Great Enclosure’, whose total accumulated cost to the world economy will reach this year and next year $9 trillion, the equivalent of the sum of Japanese and German GDP, will plunge Spain into a sharp recession that will last the rest of the year. Estimates indicate that in the last three months of 2020, the economy will continue to shrink by about 7%.
This situation, caused by social restraint and alienation measures, will raise the unemployment rate to 20.8% according to the IMF, which considers that the government’s fiscal response, like that of many other advanced economies, “has been rapid and considerable.”
Stimulus packages might be needed even after the pandemic will be halt
However, these measures should be extended “if the stops in economic activity persist or the recovery of activity, once the restrictions are lifted, is too weak,” showed a warning from the institution led by Kristalina Georgieva. Germany, the largest economy in the Eurozone, will contract by 7% this year whilst France will contract by 7.2% according to WEO estimates.
Assuming that the pandemic fades in the second half of 2020 and that the measures are effective, the IMF expects Spain’s GDP to rebound next year by 4.3%, about 2.7 percentage points more than expected about three months ago. However, the recovery will be more moderate within the Eurozone, where Italy will grow by 4.8% and Germany with 5.2%.
As regards unemployment, in Spain it should fall to 17.5%. Overall, the Eurozone will contract by 7.5% this year and grow by 4.7% in 2021 if the pandemic can be effectively controlled in the second half of this year.
“This is a crisis like no other, where there is substantial uncertainty about its impact”
The IMF pointed out that in some parts of Europe, including Spain, the outbreak has been as severe as in the Chinese province of Hubei. It stressed that while it is essential to impose containment and mobility restrictions to contain the virus, the effect is being considerable on economic activity. A situation that also adversely affects confidence, something that may weigh even more heavily on the economic outlook.
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First published in elEconomista, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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