“As countries implement necessary quarantines and social distancing practices to contain the pandemic, the world has been put in a Great Lockdown. The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes.” (Gina Gopinath, IMF blog, April 14, 2020) 

” Given the extreme uncertainty around the duration and intensity of the health crisis, we also explore alternative, more adverse scenarios. The pandemic may not recede in the second half of this year, leading to longer durations of containment, worsening financial conditions, and further breakdowns of global supply chains. In such cases, global GDP would fall even further: an additional 3 percent in 2020 if the pandemic is more protracted this year, while, if the pandemic continues into 2021, it may fall next year by an additional 8 percent compared to our baseline scenario.” (Gina Gopinath, IMF blog, April 14, 2020) 

Economists and virtually everyone in the economics and investment world have been stunned by the terrible calamity of the global pandemic.

The advanced economies have hit depression levels of unemployment in just a few months due to the lockdowns, whereas in the 1930s it took many years to reach similarly high levels of unemployment.

In fact, the global pandemic has created a series of crises – a health crisis, a financial crisis, a collapse in commodity prices, a collapse in world trade, etc.

As a result, governments in the developed world have provided unprecedented amounts of financial support to households, firms, the financial markets, and its employees. Central banks have financed virtually all of the new public spending required to keep the economies on life support.

However, unlike our experience with normal counter cyclical measures (fiscal and monetary), the new measures provide only a minimum of economic life support. Moreover, these expensive supports are hardly stimulative in the ordinary sense since all they do is maintain the advanced economies in a state of suspended animation until the Great Lockdowns are fully over.

It almost sounds like a cliché, but there will clearly be some permanent losses resulting from the Great Lockdown, as well as some permanent structural changes in labour, financial and product markets, and in commerce in general.   

Turning to the recent IMF report, the key timing assumption used in its baseline projections for 2020 and 2021 is that for most countries the pandemic and its containment reaches its peak in the second quarter of this year and then recedes into 2021. 

While the economic forecast assumes that some restrictions will still stay in place in 2021, nonetheless the global economy should have a bit of a rebound next year, which we hope is not the equivalent of a dead cat bounce. 

The IMF baseline projects global real GDP to decline of 3% this year, which represents a massive 5.9 percentage points reduction from the 2.9% expansion in 2019. Global growth is projected to rebound 5.8% next year. 

A worst-case scenario would have the pandemic not receding in the second half of this year, which leads to a longer duration on containment, worsening financial conditions, and a further breakdown of global supply chains. 

In the worst-case scenario, global GDP would fall an additional 3 percent in 2020 and an additional 8 percent in 2021.

The following IMF charts highlight that that this year’s 3% global GDP decline is incredibly worse than the decline experienced during the financial crisis of 2009. 

The cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion US dollars, greater than the economies of Japan and Germany, combined. As well, bear in mind that the global recovery in 2021 is only partial, as the level of economic activity is projected to remain far below the level we started at before the virus hit. 

The 5.8% global growth rebound in 2021 will be led by China and the emerging market countries recovering faster than the advanced economies.

Canada fares far worse than the US in the two-year projections. The US economy is projected to decline 5.9% this year and to recover by 4.7% next year. The Canadian economy is projected to decline 6.2% in 2020 and rebound by 4.2% IN 2021.

Since the pandemic started, the damage to Canada’s economy and its labour market has been brutal. Canadian employment declined by about three million in March and April. And in April a further 2.5 million workers were employed but worked less than half of their usual hours. 

Thus, in Canada’s case, the newly unemployed and under-employed because of the lock down add up to about 5.5 million, or more than one-quarter of February's employment level.