The global economy could shrink by up to 1 percent in 2020 due to the COVID-19 pandemic, and may contract even further if restrictions on economic activities are extended without adequate fiscal responses, according to analysis released Wednesday by the UN Department of Economic and Social Affairs (UN-DESA).
The UN-DESA briefing finds that millions of workers are at risk of losing their jobs as nearly 100 countries close their national borders. That could translate to a global economic contraction of 0.9 percent by the end of 2020, or even higher if governments fail to provide income support and help boost consumer spending.
As businesses lose revenue, unemployment is likely to increase sharply, transforming a supply-side shock to a wider demand-side shock for the economy. The severity of the impact will largely depend on the duration of restrictions on the movement of people and economic activities and on the scale and efficacy of responses by national treasuries. Against that backdrop, the UN-DESA is joining a chorus of voices across the UN system calling for well-designed fiscal stimulus packages which prioritize health spending and support households most affected by the pandemic. The analysis also warns that the adverse effects of prolonged economic restrictions in developed economies will soon spill over to developing countries via trade and investment channels. A sharp decline in consumer spending in the European Union and the United States will reduce imports of consumer goods from developing countries.
Developing countries, particularly those dependent on tourism and commodity exports, face heightened economic risks. Global manufacturing production could contract significantly, and the plummeting number of travellers is likely to hurt the tourism sector in small island developing states, which employs millions of low-skilled workers. Meanwhile, the decline in commodity-related revenues and a reversal of capital flows are increasing the likelihood of debt distress for many nations. Governments may be forced to curtail public expenditure at a time when they need to ramp up spending to contain the pandemic and support consumption and investment.
Elliot Harris, UN chief economist and assistant secretary-general for economic development, said the collective goal must be a resilient recovery which puts the planet back on a sustainable track. “We must not lose sight how it is affecting the most vulnerable population and what that means for sustainable development,” he noted.
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