Photo credit: World Bank

World Bank warns that the coronavirus pandemic will create lasting scars for the global economy. The world is plunging into a recession that will tip millions of people into extreme poverty.

According to the World Bank forecast, the global economy will shrink by 5.2%, with the largest fraction of economies declining in per capita output since 1870. 

In 2020, the WB predicts economic activity among advanced economies will shrink 7%. The emerging markets and developing economies will shrink 2.5%, and per capita incomes will shrink 3.6%, bringing millions of people into extreme poverty.

“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” said World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu. 

“Our first order of business is to address the global health and economic emergency. Beyond that, the global community must unite to find ways to rebuild as robust a recovery as possible to prevent more people from falling into poverty and unemployment,” she added.

Lasting scars for the global economy

The economic contraction is the hardest on countries where the pandemic was, and perhaps still is, most severe and where there is the most reliance on global trade, tourism, commodity exports, and external financing. 

By early April, nearly 150 countries closed all schools and mandated cancellation of events, and more than 80 closed all workplaces. Travel restrictions became widely imposed. These widespread lockdowns, in conjunction with social distancing guidelines for consumers and producers, devastated global activity and trade.  

The pandemic will result in lasting scars. Developing economies with weak health systems will feel severe short-term impacts. Long-term impacts will be harsh in economies that suffer financial crises and in those countries that are main energy exporters due to the collapse in oil prices.

Human capital development will feel the effects of the pandemic too, with interruptions in schooling and primary healthcare access. The pandemic is likely to exacerbate a slowdown in potential output growth and productivity growth.

For long-term growth, the World Bank says policymakers must undertake comprehensive reform programs to improve institutions and frameworks that drive economic growth.

“The current episode has already seen by far the fastest and steepest downgrades in global growth forecasts on record. If the past is any guide, there may be further growth downgrades in store, implying that policymakers may need to be ready to employ additional measures to support activity,” said World Bank Prospects Group Director Ayhan Kose.

Countries reopen as cases rise

The total number of coronavirus cases worldwide has surpassed 7 million, with over 403,000 global deaths. Eager to restart their damaged economy, some countries eased social restrictions and look to reopen, despite the global death toll still rising. 

New Zealand declared no active cases and no new cases of COVID-19, officials announced on Monday. Meanwhile, the U.S. leads in the highest numbers of reported cases. Nonetheless, all states and U.S. territories eased restrictions on business and social activity, with New York City reopening on Monday, 100 days after its first confirmed case. 

Candy Chan

Candy Chan is studying History with a focus on War and Revolution at Barnard College. She is currently a staff writer at the Columbia Daily Spectator, covering issues pertaining to Columbia's...