THE GREAT LOCKDOWN

The International Monetary Fund, IMF launched its World Economic Outlook (WEO), April 14th 2020. Below are some key highlights from a blog (link below) by the Chief Economist ( Known officially as the the Director of IMF's Research Department and the Economic Counsellor of the Fund.) of the IMF, Gita Gopinath.

NB: The title of this write-up, THE GREAT LOCKDOWN was to the best of my knowledge used by Gita Gopinath in her remarks at the launch of the World Economic Outlook(WEO), April 2020 at the IMF Spring Meetings, 2020. Prior to that I had not heard it being used.

I have extracted some key issues from the blog and discussed them below.

1. 'Under the assumption that the pandemic and required containment peaks in the second quarter for most countries in the world, and recedes in the second half of this year, in the April World Economic Outlook we project global growth in 2020 to fall to -3 percent. This is a downgrade of 6.3 percentage points from January 2020, a major revision over a very short period. This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis.'

2. 'The cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars, greater than the economies of Japan and Germany, combined.'

3. 'Emerging market and developing economies face additional challenges with unprecedented reversals in capital flows as global risk appetite wanes, and currency pressures, while coping with weaker health systems, and more limited fiscal space to provide support.'

4. 'What I have described is a baseline scenario but, given the extreme uncertainty around the duration and intensity of the health crisis, we also explore alternative, more adverse scenarios. The pandemic may not recede in the second half of this year, leading to longer durations of containment, worsening financial conditions, and further breakdowns of global supply chains. In such cases, global GDP would fall even further: an additional 3 percent in 2020 if the pandemic is more protracted this year, while, if the pandemic continues into 2021, it may fall next year by an additional 8 percent compared to our baseline scenario.'

5.'A global effort must ensure that when therapies and vaccines are developed both rich and poor nations alike have immediate access.'

6. 'Policymakers must also plan for the recovery. As containment measures come off, policies should shift swiftly to supporting demand, incentivizing firm hiring, and repairing balance sheets in the private and public sector to aid the recovery.'

7. 'Collaborative effort is needed to ensure that the world does not de-globalize, so the recovery is not damaged by further losses to productivity.'

PHIL'S SUBMISSIONS;

1. What's a Recession and the Great Depression? What about the Global Financial Crisis?

A recession is a contraction in economic activity in a given region. It is characterized by two consecutive quarters of negative growth (Negative GDP growth). A depression can be defined as a severe and long downturn in economic activity. I am sure you have heard about the great depression right? The GREAT DEPRESSION of the 1930s was the last time the world was in such a severe downturn. It lasted for 10 years. In recent times, the 2008 Global Financial Crisis (Mortgage crisis, Subprime mortgage crisis) is what we can liken to a period of economic slowdown. It was not as severe as the Great Depression of the 30s but it ravaged the economic fundamentals of the world, nonetheless. Check this out for some reading & education.

The IMF projects economic activity to decline across the global economy on the back of a disruption is supply chains, weak demand for goods & services, decline in trade, hospitality and tourism taking a hit and falling commodity prices. All these come to play to reduce economic output of individual economies (and obviously adding all that, the world economy will also be affected).

2. Decline in economic activity means a decline in output(GDP); the combined market value of goods & services produced in an economy. If we are all home, cutting back on work, buying and business, obviously the volumes will drop with corresponding monetary values. $9,000,000,000,000(trillion) is a lot,but guess what?Just to throw this in there. USA government's $2 trillion plus stimulus package to support the economy is approximately 22% of this total output loss.

3. Let me explain it this way. It's packed. So the reversal of capital flows suggests investors who have funds in countries (emerging) and developing such as ours will take their money out and back to where they came from. So in Ghana foreign investors will exit our bonds and the exit means we need to sort them out with foreign exchange (FX) as they exit our market (take their cash investments). They do this because of uncertainty. No one knows tomorrow. This isn't only on bonds but bonds it's the most relatable. But if any foreign entity comes into a market with plans to invest, spend (trade/business production) etc. or has already spent he may want to cash out to reduce his potential losses. This 'movement' of the FX causes pressures on domestic currencies of economies such as ours.(Check story below)

The others are explanatory (weaker health systems and fiscal space.)

4. The virus' trajectory cannot be easily predicted. That makes economic estimates difficult. If the virus persists. our growth prospects will dim further.

5. We must all benefit from any significant breakthrough in treatment or vaccination of the disease regardless of which part of the globe we fall on.

6. Essentially, post the pandemic how do we 're-lay' the building bricks of economies that were broken by #covid-19? That's the most important part. What can a country like Ghana do? European countries have begun working towards this. Do we have an exit strategy in the works? Continental, Regional, Zonal or country-specific?

7. We must work together. There may be a desire to revert back to protectionists policies or protectionism. We must dissuade ourselves of that notion and foster unity.

There's a lot to unpack from the WORLD ECONOMIC OUTLOOK(WEO), APRIL 2020. Check the full thing out here.

Got questions, comments or clarifications? Get in touch on Linkedln-Philip Nanfuri, Facebook- Philip Nanfuri, Instagram-@philipnanfuri Twitter-@philipnanfuri or email- [email protected]

Philip Gandaa Nanfuri is an Economic & Financial News Analyst/Contributor, Researcher (Secondary research & Anecdotal Findings) and Presenter. His works span Financial Services, Macroeconomics, Microfinance and Corporate Governance.