The world economy has fallen into recession, suffering from a “wicked cocktail” of coronavirus and the dramatic action to limit its spread, according to four former IMF chief economists. As the virus has spread from China to the rest of the world, economists no longer feel they have to wait for data to confirm the world is in recession, even though official forecasts remain more optimistic. The former top officials agreed that addressing the public health needs was the first priority, but said that with a sharp downturn likely, governments should be preparing to spend significant sums to protect businesses and households.
Serving policymakers and officials have so far sought to contain alarm over the economic consequences of the corona virus. Mark Carney, Bank of England governor, has declined to predict a UK recession while Christine Lagarde , European Central Bank president, said only that it would be a “major shock”. Gita Gopinath, IMF chief economist, said it was hard to predict what might happen but that the pandemic did not look like a normal recession. Data from China has shown a much steeper drop in services than a normal downturn would predict for instance.
“There’s not an easy lesson,” Ms Gopinath said, adding: “Thisshould be a transitory shock if there is an aggressive policy response that can stop [it] morphing into a major financial crisis.” She also said there was no reason why the economic effects of a health crisis should linger, in the way that long periods of slow growth have tended to follow financial crises as households and companies work off their debts. But her predecessors at the IMF were less guarded in their assessment. Kenneth
Rogoff, a Harvard University professor, said: “A global recession seems baked in a cake at this point with odds over 90 per cent.” Maurice Obstfeld, a professor at University of California, Berkeley , said recent events were “a wicked cocktail for the global growth”. He added: “I do not see how, given the events in China, Europe and the US, you are not going to see a severe slowdown.”