[AspirantWorld Explained] Global Economy to shrink 5.2% worst recession since WWI: World Bank

• As per the latest report by the World Bank, the global economy, which has plunged into a severe contraction, will shrink by 5.2 per cent this year due to the massive shock of the coronavirus pandemic and the shutdown measures to contain it.
• The COVID-19 recession is the first since 1870 to be triggered solely by a pandemic
• According to the report, economic activity among advanced economies is anticipated to shrink by seven per cent in 2020 as domestic demand and supply, trade and finance have been severely disrupted.
• Emerging Markets and Developing Economies (EMDEs) are expected to shrink by 2.5 per cent this year, their first contraction as a group in at least 60 years.
• Per capita incomes are expected to decline by 3.6 per cent, which will tip millions of people into extreme poverty this year.
• The World Bank report said that the global economy has experienced 14 global recessions since 1870: in 1876, 1885, 1893, 1908, 1914, 1917-21, 1930-32, 1938, 1945-46, 1975, 1982, 1991, 2009 and 2020.
• The current projections suggest that the COVID-19 recession will involve a decline in global per capita Gross Domestic Product (GDP) by 6.2 per cent, making it the deepest global recession since 1945-46, and more than twice as deep as the recession associated with the global financial crisis.

How the economy will revive?

• Faced with its worst economic crisis in decades prompted by the corona outbreak, India’s GDP growth is likely to shrink by 5% in FY 2020-21, according to Goldman Sachs.
• Government has primarily relied on loan guarantees and liquidity support as there is little room to relax fiscal deficit target without inviting ratings downgrade.
• Doles for the poor will certainly help but there is a limit to how much the government can afford to spend. Thus, our best bet would be to support SMEs as debt-laden large companies would be more interested in paring down debts, postponing capex and cutting jobs to protect their margins and avoid punishment by stock markets.
• Government should focus on helping industries that have strong backward and forward linkages with multiple industries such as automobile and real estate, and not the processors of globally over-supplied commodities such as Aluminum and steel.
• Government could consider relaxing the implementation of BS-VI emission norms for a year in non-metropolitan areas. It will support struggling automobile manufacturers, component suppliers and dealers employing millions of workers, without any monetary or fiscal stimulus.
• Helping real estate will help dependent industries starting from cement, steel, electrical appliances to interior decoration.

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