’Many millions’ pushed into poverty by recession: World Bank

COVID-19 is plunging the global economy into its deepest recession since World War 2 and will propel ‘many millions’ into extreme poverty, the World Bank predicts.

Maria Rita Dias dos Santos, wearing a protective face mask, carries food to her home in Rio de Janeiro. Picture: AP

The COVID-19 pandemic will plunge the global economy into its deepest recession since the second world war and propel "many millions" of people into extreme poverty, according to the World Bank’s latest economic outlook.

Global output will shrink by 5.2 per cent in 2020, while economic activity among advanced economies is anticipated to shrink 7 per cent “as domestic demand and supply, trade, and finance have been severely disrupted,” the report says.

Few corners of the world will be left untouched by the pandemic, and the proportion of countries suffering per capita downturns will exceed 90 per cent – the highest since 1870.

Emerging economies will contract by 2.5 per cent – the steepest fall in 60 years.

“Per capita incomes are expected to decline by 3.6 per cent, which will tip millions of people into extreme poverty this year,” the report said.

The latest grim forecast from the global body comes as Australia enters its first recession in close to three decades. The Reserve Bank predicts our economy will contract by 6 per cent in 2020, although the earlier than expected easing of restrictions has offered hope for a less severe downturn.

Data: World Bank

World Bank economists say that under a worst-case scenario global GDP could shrink by almost 8 per cent – a grim outcome which also lead to “sluggish” recovery, “hampered by severely impaired balance sheets, heightened financial market stress, and widespread bankruptcies” in emerging markets and developing economies.

The best case is for a 4 per cent slump – still more than twice as deep as the global recession of 2009. Under this upside scenario, “a sharp economic rebound would begin promptly if pandemic-control measures could be largely lifted in the near term, and fiscal and monetary policy responses succeed in supporting consumer and investor confidence”.

The World Bank warned that over the longer term, “the deep recessions triggered by the pandemic are expected to leave lasting scars through lower investment, an erosion of human capital through lost work and schooling, and fragmentation of global trade and supply linkages”.