An 8% drop in GDP in Spain and the deepest global crisis since the Great Depression a century ago. It looks like an economic catastrophe. And yet, that is rather the optimistic scenario drawn by the International Monetary Fund for the coronavirus pandemic. The agency warns that it contemplates three alternative scenarios in which the economic crisis would be even more serious, with devastating effects.
Those scenarios are three. The first, a delay in containing the pandemic. The second, a regrowth in 2021. And the third, both, the delay and the regrowth.
In its central scenario, the IMF expects the pandemic to die down in the second half of 2020 and that containment measures will be gradually withdrawn. This scenario contemplates that the confinements be concentrated in the second quarter, with a gradual recovery or subsequent de-escalation.
However, if the containment of the pandemic lasted 50% longer than expected by the IMF in its baseline scenario, the impact on the global economy would be three additional points. The drop in world activity would not be 3% this year, but 6% and the rebound in 2021 would also be less. This scenario would imply an increase in risk premiums and a tightening of financial conditions.
In the second alternative scenario, the pandemic is contained within the planned calendar this year, but there is a re-emergence in 2021. This year the forecast fall will not vary, but in 2021 the effect would be very damaging. The relapse would cost an additional five points of GDP in that year and another three in 2022, so that the rebound in the economy next year would lose almost all its strength.
The worst alternative scenario is the third, which combines the previous two: a delay in containing the current outbreak in 2020 and a relapse in 2021. In this case, GDP would fall twice this year (around 6%). ) and next year it would worsen another eight points with respect to the base scenario. From 2022 to 2024 they would lose around another 10-12 points of GDP in total compared to the baseline scenario.
In all three scenarios, but especially in the third, there would be strong increases in public spending, deficits, and debt. And everything could be complicated by the increase in risk premiums or by the lack of stimuli in view of the risk that risk premiums will rise.
One consolation remains: there is also an optimistic scenario. If an effective vaccine or therapy were obtained earlier than expected, social distancing measures could be eliminated and recovery would be faster.