Global economy could shrink by 1% due to COVID-19 pandemic

The global economy could shrink by 1 per cent in 2020 due to the coronavirus pandemic, and might contract even further if restrictions on economic activities were extended without adequate fiscal responses, according to the UN Department of Economic and Social Affairs (UN-DESA).

The UN-DESA analysis issued on Wednesday finds that millions of workers were at risk of losing their jobs as nearly 100 countries have closed their national borders, reports Xinhua news agency.

This could translate to a global economic contraction of 0.9 per cent by the end of 2020, or even higher if governments fail to provide income support and help boost consumer spending.

According to the analysis, lockdowns in Europe and North America were hitting the service sector hard, particularly industries that involve physical interactions such as retail trade, leisure and hospitality, recreation and transportation services.

Collectively, such industries account for more than a quarter of all jobs in these economies.

As businesses lose revenue, unemployment was likely to increase sharply, transforming a supply-side shock to a wider demand-side shock for the economy.

The severity of the impact will largely depend on the duration of restrictions on the movement of people and economic activities and on the scale and efficacy of responses by national treasuries.

The analysis also warns that the adverse effects of prolonged economic restrictions in developed economies will soon spill over to developing countries via trade and investment channels.

A sharp decline in consumer spending in the European Union and the US will reduce imports of consumer goods from developing countries.

Developing countries, particularly those dependent on tourism and commodity exports, face heightened economic risks.

Global manufacturing production could contract significantly, and the plummeting number of travellers is likely to hurt the tourism sector in small island developing states, which employs millions of low-skilled workers.

The UN`s International Civil Aviation Organization, welcomed the commitment by leaders of the G20 major economies last week indicating that bold fiscal support was needed to safeguard the global travel industry, in order to aid the global recovery in the coming months.

Meanwhile, the decline in commodity-related revenues and a reversal of capital flows are increasing the likelihood of debt distress for many nations.

Governments may be forced to curtail public expenditure at a time when they need to ramp up spending to contain the pandemic and support consumption and investment.

As of Thursday, the number of coronavirus cases globally stood at 216,515, while the death toll was 47,231, according to the latest update by the Washington-based Johns Hopkins University.

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Although the virus originated in the Chinese city of Wuhan last December, the US now has he highest number of cases at 216,515, while Italy accounted for the largest deaths in the world at 13,155.