The World Bank said Monday that the COVID-19 pandemic will shrink global GDP by 5.2% in 2020, the worst since World War II and nearly three times as steep as the 2009 global recession.
Although the World Bank projects a rebound of 4.2% in 2021, it warned that an “even worse scenario is possible” if the health crisis takes longer than expected to contain.
In its Global Economic Prospects report released Monday, the World Bank expressed specific concern over developing markets with weaker public health systems, where up to 60 million people could be tipped into extreme poverty. The World Bank has pledged to offer $160 billion in grants and support to developing countries needing help through the crisis.
“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 Ceyla Pazarbasioglu.
The World Bank downgraded growth forecasts for all regions, but particularly flagged Latin America, Europe, and Central Asia due to the size of their domestic outbreaks and the risk of “global spillovers” due to heavy reliance on trade, tourism, and commodities.
-6.1% GDP for the US
But the World Bank also projected deep recessions for advanced economies. The report forecasts a 9.1% contraction in real GDP for the Euro Area and a 6.1% contraction for both the United States and Japan.
In the US, the World Bank expects a rebound of 4% GDP in 2021 assuming a recovery in consumer and investor confidence, made possible by “large-scale” policy support from both the Federal Reserve and Congress.
Meanwhile China, which had achieved above 6% GDP growth over the last few years, is now projected to have growth of only 1% in 2020. The World Bank projects a sharp rebound of 6.9% growth for China in 2021.
The World Bank said it was broadly encouraged by fiscal measures taken in countries that prioritized wage support and unemployment benefits as workers were forced to stay at home to stop the spread of the virus. But the report noted that governments can still do more.
“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 group director Ayhan Kose.
The World Bank’s forecasts are a considerable downgrade since its last global report in January 2020, just as COVID-19 began spreading outside of its origin in Wuhan, China. At the time, the World Bank had projected global growth of 2.5%.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.