How bad will the global and the US economy be in 2020? The IMF offers one well-informed perspective in the April 2020 World Economic Outlook, in a chapter called \”The Great Lockdown.\”
Economic forecasts are always uncertain, but some are more uncertain than others, and trying to suss out 2020 is more uncertain than most. The IMF notes:
There is extreme uncertainty around the global growth forecast because the economic fallout depends on uncertain factors that interact in ways hard to predict. These include, for example, the pathway of the pandemic, the progress in finding a vaccine and therapies, the intensity and efficacy of containment efforts, the extent of supply disruptions and productivity losses, the repercussions of the dramatic tightening in global financial market conditions, shifts in spending patterns, behavioral changes (such as people avoiding shopping malls and public transportation), confidence effects, and volatile commodity prices.
Here, I\’ll just summarize the IMF \”baseline\” prediction. And yes, it could be better or worse than this which is what a \”baseline\” prediction means.
In the baseline scenario, the pandemic is assumed to fade in the second half of 2020, allowing for a gradual lifting of containment measures. Duration of shutdown. Considering the spread of the virus to most countries as of the end of March 2020, the global growth forecast assumes that all countries experience disruptions to economic activity due to some combination of the above-mentioned factors. The disruptions are assumed to be concentrated mostly in the second quarter of 2020 for almost all countries except China (where it is in the first quarter), with a gradual recovery thereafter as it takes some time for production to ramp up after the shock. Countries experiencing severe epidemics are assumed to lose about 8 percent of working days in 2020 over the duration of containment efforts and subsequent gradual loosening of restrictions. Other countries are also assumed to experience disruptions to economic activity related to containment measures and social distancing, which, on average, are assumed to entail a loss of about 5 percent of working days in 2020 over
the period of shutdown and gradual reopening. These losses are compounded by those generated by tighter global financial conditions, weaker external demand, and terms-of-trade losses …
Here\’s the global pattern, with the blue line (left axis) showing annual changes in global per capita GDP and the red line (right axis) showing the share of countries that will have negative growth in 2020. One quick summary would be that the drop in GDP per capita may be larger than the Great Recession, but it may also be over more quickly.
What about for the US economy? The IMF figures show US growth of 2.3% in 2019, a projection of a fall of 5.9% in 2020, and then growth of 4.7% in 2021. This is a slightly smaller decline and slightly bigger bounce-back than predicted for the European Union or for Canada. But it\’s very severe. For comparison, the US GDP declined by 2.5% in 2009, in the heart of the Great Recession. To put it another way, the IMF baseline suggests that it will take until 2022 for the US economy to get back to its size in 2019.
The IMF report has lots more detail, as well as admonitions about how economic policies can help to soften the blow. But a key factor any economic predictions is how persistent the pandemic turns out to be–and neither the IMF nor economists in general have any special insight on that key parameter.