IMF predicts 'The Great Lockdown' recession will be the steepest in nearly a century

The International Monetary Fund (IMF) has predicted that the recession that is occurring as a result of what it deems “The Great Lockdown” in response to the spread of COVID-19, the disease caused by the novel coronavirus, will be the steepest in almost a century.

In its “World Economic Outlook Report” issued April 6 and available for download at www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020, the IMF estimates that global gross domestic product (GDP) will shrink 3 percent this year as a result of the recession. This contraction, which the IMF says is based on a scenario that assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually removed, will give way to 5.8 percent growth in global GDP in 2021 as economic activity normalizes, helped by policy support.

“The projected recovery assumes that these policy actions are effective in preventing widespread firm bankruptcies, extended job losses and systemwide financial strains,” according to the report.

As with the degree of the downturn, the IMF says “extreme uncertainty” shrouds the strength of the recovery. “Some aspects that underpin the rebound may not materialize, and worse global growth outcomes are possible—for example, a deeper contraction in 2020 and a shallower recovery in 2021—depending on the pathway of the pandemic and the severity of the associated economic and financial consequences,” the report states.

Even if the spread of the virus slows, the IMF says the recovery could be weaker than forecast for a number of reasons, including remaining uncertainty about contagion, confidence failing to improve and closures of establishments and structural shifts in the behavior of households and businesses, which could lead to longer supply chain disruptions and weakness in aggregate demand. “Scars left by reduced investment and bankruptcies may run more extensively through the economy. Depending on the duration, global business confidence could be severely affected, leading to weaker investment and growth than projected in the baseline.”

The report has a special section on commodity markets, which notes that energy and metals prices have fallen sharply, “though the price impact has varied significantly across commodities, depending on the specific end-use sectors and regions affected by the outbreak and on the storability and supply elasticity of the commodity.”

The IMF says base metal prices declined by 5.5 percent from August 2019 to February 2020 and by an additional 9.1 percent in March. “The shutdown of Chinese factories in February (China accounts for about half major metals global consumption) and, later, in Europe and in the United States, has weighed heavily on the demand for industrial metals. Since the outbreak, metal stocks at warehouses approved by major metal exchanges have increased notably, buffering the impact of lower demand on spot prices and shifting the futures curve down significantly,” the report notes. “The IMF annual base metals price index is projected to decrease by 10.2 percent in 2020 and by a further 4.2 percent in 2021 on expectations of a sharp decline in global industrial activity. A further and more prolonged slowdown in metal-intensive sectors’ economic activity remains the most significant downside risk for metal prices, while supply stoppages present an upside.”