Global Economy To Fall Into Recession Due To COVID-19

The world economy is expected to fall into recession as a result of Covid-19 according to the 21st Edition of the World Bank’s Kenya Economic Update that has outlined how economies are reacting to the ongoing Covid-19.

According to the World Bank, the COVID-19 virus and responses to it such as social distancing measures and countrywide lockdowns are generating a negative supply shock to the global economy.

In the face of Covid-19, industries have shut operations, global production and transport chains are being disrupted, and consumer demand is suppressed.

This unanticipated shock will lead to a major downward revision of the World Bank’s baseline global growth projection for 2020, which prior to the crisis was 2.5 percent.

The expectation of a global recession reflects major negative impacts from the pandemic in both the advanced and emerging market and developing economies (EMDEs), including China.

“Simulations suggest that the COVID-19 shock would be greater than the global financial crisis when global output contracted by 1.7 percent in 2009. The recent collapse in the price of oil is also expected to weigh heavily on the growth of oil exporters,” said the report.

Sub-Saharan Africa will receive the heat just like the rest of the world during this pandemic. Average growth for Sub-Saharan Africa, according to the World Bank is expected to decline from 2.4 percent in 2019 to a range of between -2.1 and -5.1 percent in 2020. This translates to a loss in output of between US$ 37 billion and US$ 79 billion.

The downward revision reflects deteriorated external demand following a sharp contraction in output growth among the region’s key trading partners (China and Europe), a fall in commodity prices (oil and metals), reduced tourism receipts, as well as the effect of measures taken to contain the spread of COVID-19 pandemic.

Prices of crude oil and metals have decreased by about 50 percent and 11 percent, respectively, between December 2019 and March 2020, adversely affecting exports and revenue for Nigeria and Angola ( major oil exporters) as well as South Africa (a large metal exporter).

In non-resource intensive economies, growth is expected to slow down significantly but remain positive. The weakening of growth reflects weak external demand, disrupted supply chains, and falling domestic demand.

The East African Community (EAC) is expected to post significantly slower growth in 2020 due to the pandemic according to the findings from the World Bank Group.

Countries have adopted various strategies of containing the spread of COVID-19 including a ban on international flights, closure of schools, barring large gatherings, nightly curfews, and outright lockdown.

Tanzania has imposed the least stringent measures of social distancing, while Rwanda and Uganda have introduced the most restrictive containment measures, including complete lockdown.

The combination of a severe external demand shock and domestic demand shocks associated with the public health measure taken to contain the spread of COVID-19 are expected to reduce growth to an average of 3.1 percent in 2020, down from about 5.8 percent in 2019.

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