US Economy crash coming soon – Know why?

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US Economy crash coming soon: In the three months since our last World Economic Outlook update in January, the world has changed dramatically. A rare disaster, a coronavirus pandemic, has claimed the lives of an unfathomably large number of people.

The world has been placed in a Great Lockdown as countries implement necessary quarantines and social distancing practices to contain the pandemic. The magnitude and speed of the subsequent collapse inactivity are unprecedented in our lifetimes.

April Global growth is expected to fall to -3 percent in 2020, according to the World Economic Outlook.

This is a crisis unlike any other, and the consequences for people’s lives and livelihoods are unknown. A lot is dependent on the virus’s epidemiology, the efficacy of containment measures, and the development of therapeutics and vaccines, all of which are difficult to predict.

Furthermore, many countries are now dealing with multiple crises, including a health crisis, a financial crisis, and a drop in commodity prices, all of which are intertwined in complex ways.

While policymakers are providing unprecedented support to households, businesses, and financial markets, there is considerable uncertainty about what the economic landscape will look like once we emerge from this lockdown.

US economic crash 2022

US economic crash 2022: In the April World Economic Outlook, we project global growth in 2020 to fall to -3 percent, based on the assumption that the pandemic and required containment peaks in the second quarter for most countries around the world and then fades in the second half of this year.

US Economy crash coming soon - Know why?
US Economy crash coming soon – Know why?

This is a 6.3-percentage-point decrease from January 2020, a significant change in such a short time. The Great Lockdown is thus the worst downturn since the Great Depression, and far worse than the Global Financial Crisis.

We forecast global growth to rebound to 5.8% in 2021, assuming the pandemic fades in the second half of 2020 and global policy actions are effective in preventing widespread firm bankruptcies, extended job losses, and system-wide financial strains.

This recovery in 2021 will only be partial, as economic activity is expected to remain below the level we predicted for the year before the virus struck. The global GDP loss from the pandemic crisis could be around 9 trillion dollars in 2020 and 2021, more than the economies of Japan and Germany combined.

Know the reason why the US economy crashed

This is a truly global crisis, as no country is immune from it. Countries that rely on tourism, travel, hospitality, and entertainment for their economic growth are particularly hard hit. With unprecedented reversals in capital flows as global risk appetite wanes, currency pressures, and weaker health systems, emerging market and developing economies face additional challenges. Furthermore, several economies came into the crisis in a vulnerable position, with slow growth and high debt levels.

Both advanced and emerging market and developing economies are in recession for the first time since the Great Depression. Growth in advanced economies is expected to be -6.1 percent this year.

With normal growth rates well above advanced economies, emerging market and developing economies are expected to have negative growth rates of -1.0 percent in 2020, and -2.2 percent if China is excluded. Over 170 countries’ per capita income is expected to decline.

In 2021, advanced economies, as well as an emerging markets and developing economies, are expected to recover to some extent.

Exceptional policy actions

The use of lockdowns to slow the spread of COVID-19 allows health systems to cope with the disease, allowing economic activity to resume. There is no trade-off between saving lives and saving livelihoods in this sense.

Countries should continue to invest heavily in their health systems, conduct extensive testing, and avoid imposing trade restrictions on medical supplies. When new therapies and vaccines are developed, a global effort must be made to ensure that both rich and poor countries have immediate access.

While the economy is shut down, policymakers must ensure that people can meet their basic needs and that businesses can resume operations once the pandemic’s acute phases have passed.

Many policymakers have already taken large, timely, and targeted fiscal, monetary, and financial policies to help households and businesses, including credit guarantees, liquidity facilities, loan forbearance, expanded unemployment insurance, enhanced benefits, and tax relief.

This support should continue throughout the containment phase to minimize the long-term consequences of the severe downturn’s subdued investment and job losses.

The recovery must also be planned for by policymakers. To aid the recovery, policies should quickly shift to supporting demand, incentivizing firm hiring, and repairing balance sheets in the private and public sectors as containment measures are phased out.

The benefits of fiscal stimulus that is coordinated across countries with fiscal space will be magnified. During the recovery phase, debt repayment moratoria and debt restructuring may be necessary.

Multilateral cooperation is critical to global recovery. Bilateral creditors and international financial institutions should provide concessional financing, grants, and debt relief to developing countries in order to support needed spending. The activation and establishment of swap lines between major central banks have aided in the alleviation of international liquidity shortages, and these lines may need to be expanded in the future.

We are actively deploying our one-trillion-dollar lending capacity at the International Monetary Fund to support vulnerable countries, including through rapid-disbursement emergency financing and debt service relief to our poorest member countries, and we are urging official bilateral creditors to do the same.

There are some encouraging signs that the health crisis is coming to an end. At least for the time being, countries are successfully containing the virus through social-distancing practices, testing, and contact tracing, and treatments and vaccines may be developed sooner than expected.

Meanwhile, we are faced with a great deal of uncertainty about what will happen next. Domestic and international policy responses must be large, quickly deployed, and quickly re-calibrated as new data becomes available, in proportion to the scale and speed of the crisis.

Policymakers around the world must match the courageous actions of doctors and nurses if we are to collectively overcome this crisis.

Alternative adverse scenarios

I’ve described a baseline scenario, but given the extreme uncertainty surrounding the length and severity of the health crisis, we’ll also look at other, more dire scenarios.

The pandemic may not abate in the second half of this year, resulting in longer containment periods, worsening financial conditions, and further supply chain disruptions around the world.

In such cases, global GDP would fall even more: an additional 3% in 2020 if the pandemic lasts longer this year, and an additional 8% next year if the pandemic lasts into 2021, compared to our baseline scenario.

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