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UN: Pandemic Could Shrink Economy 1% 04/02 06:09

UN: Pandemic Could Shrink Economy 1%   04/02 06:09

   The global economy could shrink almost 1% this year due to the new 
coronavirus, a sharp reversal from the pre-pandemic forecast of 2.5% growth, 
the United Nations said Wednesday. 

   UNITED NATIONS (AP) -- The global economy could shrink almost 1% this year 
due to the new coronavirus, a sharp reversal from the pre-pandemic forecast of 
2.5% growth, the United Nations said Wednesday. 

   The U.N. Department of Economic and Social Affairs warned in a report that 
the decline could be even deeper if restrictions on economic activities extend 
into the third quarter of the year and if fiscal stimulus efforts don't support 
income and consumer spending.

   By comparison, it said, the world economy contracted 1.7% during the global 
financial crisis in 2009.

   "Fears of the exponential spread of the virus --- and growing uncertainties 
about the efficacy of various containment measures --- have rocked financial 
markets worldwide," the report noted, "with market volatility surpassing its 
peak during the global financial crisis and equity markets and oil prices 
plunging to multi-year lows."

   In the best-case scenario, the report said, moderate declines in private 
consumption, investment and exports will be offset by increases in government 
spending in the seven major industrialized nations and China, leading to global 
growth of 1.2% in 2020.

   In the worst-case scenario, it said, global output would contract 0.9%, 
"based on demand-side shocks of different magnitudes" to China, Japan, South 
Korea, the United States and the European Union as well as a 50% decline in oil 

   This scenario "assumes that wide-ranging restrictions on economic activities 
in the EU and the United States would extend until the middle of the second 
quarter," the report said.

   It said increasing restrictions on the movement of people and lock-downs in 
Europe and North America "are hitting the service sector hard, particularly 
industries that involve physical interactions such as retail trade, leisure and 
hospitality, recreation and transportation services." Those sectors account for 
more than a quarter of all jobs in those countries, and as these businesses 
lose revenue, unemployment is likely to increase sharply, it said.

   The report said the negative effects of current economic restrictions in 
richer developed nations will soon spill over into developing countries, which 
will see lower trade and investment.

   The severity of the economic impact --- "whether a moderate or deep 
recession" --- will largely depend on the duration of restrictions on the 
movement of people and economic activities in major economies and on the size 
and impact of fiscal responses, it said.

   "Urgent and bold policy measures are needed, not only to contain the 
pandemic and save lives, but also to protect the most vulnerable in our 
societies from economic ruin and to sustain economic growth and financial 
stability," said Liu Zhenmin, the U.N. undersecretary-general for economic and 
social affairs. 

   The report said fiscal stimulus packages should prioritize health spending 
to contain the spread of the virus and should provide income support to 
households most affected by the pandemic.

   But the outlook remains gloomy.

   "A sharp decline in consumer spending in the European Union and the United 
States will reduce imports of consumer goods from developing countries," the 
report said. "In addition, global manufacturing production could contract 
significantly, amid the possibility of extended disruptions to global supply 

   It noted that several automobile companies have announced large-scale 
production suspensions in Europe and the United States and many firms worldwide 
especially in the auto, consumer electronics and telecommunications industries 
"are facing shortages of intermediate components as exports from China 
contracted at an annual pace of 17.2 per cent in the first two months of the 

   "More severe and protracted production disruptions would affect a large 
number of developing economies that are deeply integrated in global supply 
networks," it warned.

   Developing countries, particularly those dependent on tourism and commodity 
exports, also face face heightened economic risks, including an increasing 
likelihood of "debt-distress" for many commodity-dependent economies, it said.

   The report said the recent collapse in global commodity prices is 
compounding the bleak fiscal outlook for many of these countries, which haven't 
fully recovered from the after-effects of sharp commodity price declines in 

   The report said the worsening pandemic is increasing deep-seated economic 
anxiety. "Even in many high-income countries, a significant proportion of the 
population do not have enough financial wealth to live beyond the national 
poverty line for three months, causing many to fear for their economic 
security," it said.