Mbabane: If the World Bank’s latest economic “baseline” predictions prove correct, 2020 is likely to see world recession records being smashed as the Covid-19 pandemic deals a devastating blow to global growth.
The global lender has predicted the “deepest global recession since World War II”.
The “highest synchronisation of national recessions since 1870”.
The “first output contraction” within emerging market and developing economies (EMDEs) since 1960.
The “fastest and steepest downgrade in (global) growth forecasts” on record and “more than twice as deep as the recession associated with the global financial crisis” in 2009.
These are some of the gloomy predictions contained in the World Bank’s Global Economic Prospects report, published on Monday. In it, the bank currently forecasts that the global economy will decline by 5.2 percent, while Eswatini’s GDP will plunge 2.8 percent in 2020.
South Africa is expected to see one of the worse economic contractions in sub-Saharan Africa of 7.1 percent. The bank says the region overall is “on course to contract by 2.8 percent in 2020” – the deepest on record. Nigeria — the region’s largest economy — is expected to shrink by 3.2 percent this year.
“In Nigeria, and South Africa – the two largest economies in the region – activity has fallen precipitously during the first half of this year,” the report notes.
“In South Africa, activity is expected to contract by 7.1 percent this year — the deepest contraction in a century and 8 percent weaker than previously forecast — as stringent but necessary domestic [Covid-19] containment measures, including an extended national lockdown, have severely disrupted activity,” the World Bank adds.
As a result of these severe economic strains, activity in the region is expected to contract by 2.8 percent this year—the sharpest contraction on record and 5.8 percentage points weaker than previous forecasts. The fall in per capita GDP is bound to be even deeper, likely causing millions in the region to fall back into extreme poverty, the bank noted.
Growth in the region is expected to rebound to 3.1 percent in 2021; however, the outlook is subject to substantial uncertainty. The projected pick-up assumes that the pandemic will have faded by the second half of 2020, that domestic outbreaks in the region follow a similar path, and that growth in major trading partners will rebound. Commodity prices are also expected to recover but remain below 2019 levels. However, the pandemic’s progression is particularly hard to predict in Sub-Saharan Africa, as the region faces significant hurdles in containing the virus. These include weak and underfunded health care systems—government per capita spending on health care is about 2 percent of that in advanced economies—and lack of access to basic sanitation
Recent developments Activity in Sub-Saharan Africa collapsed in the first half of this year. The COVID-19 pandemic has spread rapidly across the region, taking a heavy human and economic toll with over 2 500 reported fatalities among more than 100 000 confirmed infections, while causing an unprecedented disruption to region-wide economic activity. Social distancing measures implemented in most countries to limit the spread of the pandemic and ease pressures on often-fragile health systems have brought activity close to a halt in many sectors.
Moreover, the region has suffered as a result of the impact of the pandemic on key trading partners, the disruption to global travel and supply chains, and the collapse in global commodity prices—particularly those of oil and industrial metals. The effect of these shocks has been exacerbated by heightened investor risk-aversion, which has spurred unprecedented capital outflows from the region, dislocating currency depreciations, steep stock market falls, and sharply-higher sovereign borrowing costs. Countries that have been most affected are those with weak health systems, large tourism sectors, balance sheet vulnerabilities to financing shocks, or that are dependent on commodity exports.
According to the report, the other economies in the region have also suffered markedly during the first half of 2020. In addition to domestic disruptions, several industrial commodity exporters have had to cope with weaker external demand and lower prices for oil and metals (Angola, Democratic Republic of Congo, Ghana).
Many agricultural commodity exporters have suffered from a collapse in export demand as well as disruptions to supply chains (Côte d’Ivoire, Ethiopia, Kenya). The precipitous fall in global travel as a result of the pandemic has had a particularly severe impact on countries with significant exposure to global travel and tourism (Cabo Verde, Ethiopia, Mauritius, Seychelles). Inflation in the region is expected to edge up this year, on average, reflecting sharp currency depreciations and disruptions to supply chains. Despite this, several central banks have eased their monetary stances in response to the COVID-19- related slowdown in activity (Democratic Republic of Congo, Ghana, Kenya, Mauritius, South Africa), while others have lowered reserve requirements to free up liquidity (Botswana, Mozambique), implemented asset purchase