As G20 heads of state gathered on November 21-22 for a virtual summit hosted by Saudi Arabia, International Monetary Fund Director Kristalina Georgieva warns: “The world economy is at a turning point. The resurgence of infections shows how difficult it will be to get back to normal ”.
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For the whole world, the dropout is expected to be 4.4 percentage points of GDP in 2020, according to the Fund’s forecasts. Some countries are more affected than others; India should end with a GDP down 10 points, the euro zone with a drop of 8.3, Latin America minus 8.1.
On the European continent, Spain (- 12.8), Italy (- 10.6), France (- 9.8) or the United Kingdom (- 9.8) are among the most affected. Germany, for its part, should limit its losses to 6 percentage points of GDP. But these numbers do not yet take into account the current second wave, so they could go down.
US aid plan limited the fall
Europe suffers from having been severely affected by the virus. The number of Covid victims remains below the mortality observed in the United States: 739 deaths per million inhabitants compared to 507 in the EU.
And yet, the US economy is only expected to shrink in 2020 by 4.3 percentage points of GDP, half that of the euro zone. This is explained by the massive nature of the plan to support the economy, with the sending of checks to millions of American households. Europe, already having social safety nets, has rather focused its aid on businesses. It is still too early to say which of the two zones will emerge better from the crisis.
What is certain, however, is that China will get everyone to agree. The first country hit by the epidemic, China was able to stop the progress of the virus and very quickly return to normal activity. It should end 2020 with a growth of 1.9 points of GDP, the only large economy to be in positive territory. Far from 6% in 2019, but performance remains remarkable in a period of generalized recession.
The risk of a debt crisis
All the other emerging countries drop out: Russia should finish at – 4.1, the Middle East and North Africa zone at – 5, Sub-Saharan Africa at – 3. In comparison with Europe, these zones seem less affected. . However, the impression is misleading because these economies are more fragile and have less debt capacity.
On November 18, Zambia thus became the first African country to find itself in default of payment on its debt since the start of the pandemic. The G20 has decided on a moratorium on repayments for 46 countries, which runs until June 2021. It has also paved the way for debt cancellations for the poorest.
Without it, a new debt crisis would already be here. But it is not sure that these measures are enough, as Bolivia, too, threatens to suspend its repayments.