Home » World » Corona country reports from the IMF – extremely gloomy forecast for the global economy

Corona country reports from the IMF – extremely gloomy forecast for the global economy

There hasn’t been a crash like this since the Great Depression in the 1930s. Switzerland also appears in the IMF country report.

Photo: Gonzalo Fuentes / File Photo

Warns of a crisis like never before: Georgieva Kristalina, head of the International Monetary Fund.

Photo: Gonzalo Fuentes / File Photo

Reuters

The International Monetary Fund is also different this spring. His semi-annual meeting, to which the world’s central bankers and finance ministers and other economic policy-makers are usually invited, takes place virtually for the first time. The economic prospects that the Monetary Fund presented in its most important publication, the “World Economic Outlook” (WEO), for the global economy today are also unique: they have never been so bleak since the fund was founded.

Already in the foreword to the report, the fund’s chief economist, Gita Gopinath, states that the global economy will very likely see the worst crisis since the Great Depression of the 1930s, and thus a worse development than that after the financial crisis. The world’s gross domestic product (GDP) will decrease by 3 percent according to the IMF baseline scenario. How dramatic this forecast is can be understood if one takes into account that growth in global GDP of less than 3 percent can already be read as a crisis scenario. This is mainly due to the fact that poorer and emerging countries generally need and report higher growth because they come from a much lower level.

The most important example of this is China, whose GDP has grown by an average of 9 percent since 2000 and even by 2015, according to data from the IMF, by more than 6.5 percent annually. According to the latest forecast, it should only increase by 1.2 percent this year. The importance for the world is shown by the fact that this country was only recently a locomotive for the global economy. The GDP of the emerging and developing countries as a whole – with the exception of China – will even collapse by 2.2 percent this year, according to the IMF forecast.

The worst year since 1975

The forecasts also look dramatic for the rich countries. The Swiss economy is forecast to collapse by 6 percent, almost as strong as it has not been since 1975, the worst year for the Swiss economy since the Second World War. At that time, extremely high oil prices and currency turmoil plunged the country into a crisis. GDP shrank by more than 7 percent and 300,000 employees lost their jobs. The unemployment rate did not rise sharply at that time only because many foreign workers left the country because of the crisis, but also because women left the work process.

The IMF’s forecast of the current consequences of the crisis on the Swiss labor market is difficult to understand and remains unfounded: despite the expected sharp economic downturn, the unemployment rate should “only” rise to 2.7 percent. As early as March, the State Secretariat for Economic Affairs (Seco) reported a higher rate of 2.8 percent (seasonally adjusted). Around 2,000 people registered with the unemployment offices each day that month. In its negative scenarios for the Swiss economy published last week, Seco expects GDP in Switzerland to fall between 7.1 and 10.4 percent this year and unemployment to rise to between 4 and 6 percent. The Office does not want to publish an actual forecast until later.

So far, the focus of the debates on economic damage has mostly been on the lockdown imposed in the countries themselves – the forced stopping of many economic activities. However, the fact that the whole world economy is being slowed down by such measures makes the situation much worse for all countries, especially for those who live heavily on foreign trade. And that applies particularly to Switzerland. According to the IMF’s forecast, the key sales countries for Swiss products are also hard hit by the crisis. The eurozone economy is expected to collapse by 7.5 percent – with lows in Italy (-9.1 percent) and Spain (-8 percent). The GDP of Germany, the dominant Swiss foreign trade partner, is forecast to collapse by 7 percent and that of the USA by 5.9 percent.

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