The Korea Herald


Global economy to face biggest setback since Great Depression: IMF

IMF slashes growth outlook by 6.3% to an unprecedented minus 3.3%; S. Korea to be less affected

By Bae Hyunjung

Published : April 14, 2020 - 21:30

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The COVID-19 pandemic will lead to an extensive slump in the global economy, much more than that of the Great Depression in 1930, according to the International Monetary Fund on Tuesday.

However, South Korea is likely to suffer fewer economic damages, due to its extensive quarantine measures and preemptive policy actions to counter the blow of the pandemic.

Thousands of unemployed people wait outside the State Labor Bureau in New York City to register for federal relief jobs in 1933. Thousands of unemployed people wait outside the State Labor Bureau in New York City to register for federal relief jobs in 1933.

In its revised World Economic Outlook report, the IMF forecast that the global economy this year will contract 3 percent on-year. The updated figure was down 6.3 percentage point from the 3.3 percent suggested in January, before the China-originated epidemic spread beyond borders.

The growth outlook for developed economies came to negative 6.1 percent, down 7.7 percentage point during the same period, while that for emerging economies was revised down 5.4 percentage point to negative 1 percent.

“In this latest outlook, the IMF foresees that the world economy this year will undergo the worst recession since 1930,” South Korea‘s Ministry of Economy and Finance said in a release.

Back in the global financial crisis, the world economy contracted 0.1 percent on-year in 2009, before rebounding to 5.4 percent in the following year. The IMF’s outlook suggested in April 2009 was minus 1.3 percent.

Unlike other market shocks in the past, the new coronavirus pandemic has dampened labor supplies, and upset financial markets -- all of which have increased volatility and default risks, according to the IMF.

The IMF also suggested that after hitting a historical low this year, the global economy will regain some momentum, depending on the development of the ongoing pandemic. The growth outlook for 2021 was a 5.8 percent expansion, up 2.4 percentage point from the IMF’s previous figure.

The IMF’s top scenario is that the pandemic will dwindle away in the second half of this year, while key economies -- except China -- will likely see their market disturbance peak during the second quarter.

But it is also plausible that the pandemic will prolong for longer than expected or recur in 2021, in which case the growth outlook will have to be lowered, the IMF added.

Regardless of the turnout, most economies will fail to see their gross domestic product recover their previous level as suggested in the IMF’s January outlook, the organization warned.

For Korea, the growth outlook for this year was adjusted to negative 1.2 percent, down 3.4 percentage point from its January suggestion.

Despite the drastic downturn, Korea’s figures were the most favorable among the 36 member states of the Organization for Economic Cooperation and Development.

“The forecast embodies Korea’s comprehensive approach in containing the CV19 outbreak and quick economic policy response, which helped mitigate the negative impact on domestic activity,” said Andreas Bauer, senior resident representative in the Asia-Pacific region.

“However, given Korea’s high degree of openness, the growth prospects are constrained by very weak external demand, as reflected in sharply lower growth projections for its main trading partners.”

Korea saw its economic growth hit a record-low of minus 5.1 percent in 1998 during the Asian financial crisis.

By Bae Hyun-jung (