The world economy is moving towards recession with GDP projected to shrink by 3.8 percent in 2020, substantially worse than the 0.4pc contraction during the 2009 global financial crisis, according to the Institute of International Finance (IIF).
Contrary to the recovery after the 2009 global financial crisis, the recovery of the emerging markets from the Covid-19 shock is going to be “shallower and harder to navigate as a result,” it added.
“We forecast a deep recession this year, with global GDP contracting by 3.8pc. The recession we forecast in advanced economies is comparable to the 2009 experience. Instead, China and India which account for nearly all of the weaker global growth picture.”
Although the economy of China has grown by 3.2pc year-on-year during the second quarter, the infrastructure stimulus seen during the 2009 recession is absent this time, it added. Subsequently, global economic activity and prices of the commodities haven’t received the jump-start they desperately needed or seen the last time around.
Whereas on the other side, India is experiencing a deep recession as Covid-19 lockdowns are expected to shrink the GDP sharply this year, in contrast to the expansion in 2009. However, the Indian economy shrunk by 23.9pc during the quarter ending in June. Analysts fear the country might be heading for a recession if the rout continues within the third quarter of 2020.
Even before the Covid-19 shock, the country’s economy was astray despite that the Indian economy grew by 3.1pc in the first quarter of 2020 ending in March — lowest in nearly a decade.
As a result, China and India have had a domino effect on the commodity-driven economies in South America and the Association of South East Asian (ASEAN) economies.
“These two things almost fully account for the deeper recession we are forecasting, with adverse knock-on effects to Latin America via the commodity channel and negative fall-out for the remainder of Asia via trade linkages,” the IIF report said.
The advanced economies across the world have witnessed a shrinking effect in respect of GDP by 11.5pc in the second quarter of 2020, while it contracted by 10pc across emerging markets — excluding China and India thanks to their size, it added.