Published 11:15 IST, June 3rd 2020
Amid Covid, World Bank's GEP Report outlines worst global economic crisis in eight decades
The World Bank GEP report stated that more than 60 million people could be pushed to poverty due to the economic crisis triggered by the coronavirus outbreak
President of the World Bank Group David Malpass cited the Global Economic Prospects (GEP) report which highlights the blow suffered by the global economy due to coronavirus. The report states that the economic crisis can push more than 60 million people into extreme poverty this year.
World Bank GEP report highlights the severity of economic crisis
Suggesting ways in which countries can start working towards restoring the economy, the report stated that an orderly allocation of "capital toward sectors that are productive in the new post-pandemic structures – using systems that can build and retain more human and physical capital during the recovery."
"The GEP report finds a deep global recession, accompanied by a collapse in global trade, tourism and commodity prices and extraordinary market volatility. The pandemic will also have severe and long-lasting socioeconomic impacts that may weaken long-term economic growth prospects, lower investment because of elevated uncertainty, and lead to the erosion of human capital."
"Beyond coping with the immediate crisis to limit the harm, policymakers can make a robust recovery more likely by maintaining private sector systems and infrastructure and allowing markets to allocate resources toward productive activities. The balance sheet stress imposed by the recession may reveal sovereign and corporate weaknesses. Policymakers can resolve balance sheet related problems by ensuring transparency of financial commitments," it added.
Focusing on the initial impact, the report stated that "Disruptions to production and international transport have increased the risk that critical inputs will be unavailable, potentially leading to cascading production shortfalls in global value chains. Manufacturers’ stocks of purchases have fallen, while suppliers’ delivery times have lengthened. Industries reliant on “just-in-time” inputs from global value chains and lean inventories have been particularly affected. In the automobile sector, a collapse in demand, combined with production and delivery challenges, has led to a precipitous plunge in sales worldwide."
Focusing on the long term impact of the virus, the report stated that the impact of the virus has lead to lasting damages resulting in severe depression that has not been a witness for more than eight decades, corresponded with the sharply tighter financing conditions and a record oil price collapse. The two additional factors will lead to a higher likelihood of the financial crisis and trade shock to energy exporters. Consequences of the financial crisis will "increase liquidity demand and tighten credit conditions more broadly—including for productivity-enhancing technologies embodied in new investment and for research and development spending; they curtail access to bank lending for creative firms; they leave a legacy of obsolete capacity; they trigger self-fulfilling expectations of weak growth, and they cause long-term unemployment that leads to human capital loss and reduced job search activity."
(With ANI inputs)
Updated 11:15 IST, June 3rd 2020