The global economy will contract 3 per cent this year as the coronavirus triggers the biggest economic reversal since the Great Depression more than 90 years ago, the International Monetary Fund (IMF) said on Tuesday.

In its latest world economic outlook report, the Washington-based fund predicted most of the economic hit would be confined to 2020 with global growth bouncing back to 5.8 per cent next year.

“This recovery in 2021 is only partial as the level of economic activity is projected to remain below the level we had projected for 2021, before the virus hit,” IMF chief economist Gita Gopinath told a news conference via video link.

Under the fund’s best-case scenario, the world is likely to lose a cumulative $9 trillion (€8.2 trillion) in output over two years – greater than the combined gross domestic product of Germany and Japan, she added.

The agency also warned that its “baseline scenario” assumed that the pandemic would fade in the second half of 2020 and containment efforts could be gradually unwound, which it acknowledges is by no means certain.

There is “extreme uncertainty” about the forecasts, it said, as they depend on a number of “hard to predict” factors such as the pathway of the pandemic, the relative success of containment efforts and the economic impact of lockdown measures.

A more prolonged outbreak extending through the third quarter could cause a a deeper contraction in 2020 and a slower recovery in 2021, due to the “scarring” effects of bankruptcies and prolonged unemployment, the fund said.

It also warned that if the world were to experience a second outbreak of the pandemic next year that forced more shutdowns, this could cause a reduction of five to eight percentage points in the global GDP baseline forecast for next year, keeping the world in recession for a second straight year.

“It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago,” it said.

“The Great Lockdown, as one might call it, is projected to shrink global growth dramatically,” it added.

‘Crisis like no other’

The IMF predicted the euro zone economy would contract by 7.5 per cent in 2020 and the Irish economy by 6.8 per cent this year.

The agency said the jobless rate in Ireland would rise to an average of 12 per cent in 2020, up from a low of 4.8 per cent in February, and would stay elevated at almost 8 per cent in 2021.

The high number of mild and asymptomatic cases of coronavirus has caused a rapid spread of the disease, which now affects 1.9 million people in more than 185 countries.

“We now encounter a grim reality, where exponential growth of contagion means 100 infected individuals become 10,000 in a matter of a few days,” the IMF said in its report.

“This crisis is like no other. First, the shock is large. The output loss associated with this health emergency and related containment measures likely dwarfs the losses that triggered the global financial crisis,” it says.

“Second, like in a war or a political crisis, there is continued severe uncertainty about the duration and intensity of the shock.

“In normal crises, policymakers try to encourage economic activity by stimulating aggregate demand as quickly as possible. This time the crisis is to a large extent the consequence of needed containment measures.”

“Despite the dire circumstances,” there are grounds for optimism. The IMF notes that in countries with major outbreaks, the number of new cases has come down after strong social distancing practices were put in place. It also says “the unprecedented pace of work” on treatments and vaccines promises hope.

“The swift and substantial economic policy actions taken in many countries will help shield people and firms, preventing even more severe economic pain and create the conditions for the recovery,” it says.