STATUS REPORT 2020 1 Economic Environment Covid-19 triggered the worst global recession in decades in 2020. The crisis that followed led to an unprecedented economic collapse with dramatic consequences for developed and developing countries. Economic output declined in more than 85% of the world’s countries. Policymakers enacted extraordinary measures to protect people and national healthcare systems, the economy, and the financial system. To prevent an uncontrolled spread of the virus, most countries imposed a strict lockdown in the first half of the year, followed by additional lockdowns in the last quarter of the year as infection rates rose again in the fall and winter. To limit the immediate economic damage, governments relied on measures such as government-guaranteed loans, payment deferrals for individuals and companies, and support from hardship funds. Central banks around the world loosened their monetary policy and the G10 countries expanded their balance sheets by nearly1 EUR 6.5 trillion. More than 20 central banks in emerging markets conducted bond purchases for the first time. In addition, fiscal policy measures supported households and companies worldwide with a total of2 EUR 10.5 trillion. Economic activity dropped sharply in most countries. With a 3.4%3 decline in real GDP, the United States came through the crisis better than Japan or the European Union. Important European economies like Italy and France posted double-digit drops in GDP. China performed better than other large economies in the developing world. After a slump in the first quarter of 2020, the Chinese economy bounced back with more vigour than most other countries after easing the restrictions from its first lockdown. Real overall GDP rose by 2.3% in4 China. All other large developing countries, like India, Brazil, Russia, and Turkey, sustained significant losses. India’s economy was hit particularly hard, experiencing its first recession in 40 years. The Russian economy suffered both from the Covid-19 crisis and low oil prices. The economies of Central and Eastern Europe were damaged to a similar degree by the crisis that the virus unleashed. Overall real GDP fell by 3.54%5 worldwide. In the United States, economic developments were dominated by Covid-19, rising tensions between the USA and China, and November’s presidential election. In April and May, economic output slumped due to the coronavirus crisis, causing the unemployment rate to rise significantly for a time. It hit a high of over 14% in April6. However, thanks to robust domestic demand, an improving labour market, very loose monetary policy, and strong fiscal stimulus, the economy quickly began to recover. At the end of the year, unemployment had fallen to 6.7%7. Core inflation remained below the US central bank’s (Fed) target of 2%. In March 2020, the Fed cut its key interest rate to zero and launched a new round of quantitative easing. It included purchases of USD 700 billion of government bonds and mortgage-backed securities (MBS) in response to the slowing economy. Overall, the US economy declined by 3.4% in 2020.8 The crisis hit the euro area hard too. At 7.2%9, the decline in economic output was more pronounced than in other developed regions of the world. The measures taken in response to the Covid-19 pandemic – national lockdowns, school closures, and entry restrictions – caused severe disruptions to economic life. Tourism, in particular, was affected and was shut down almost entirely for several months during the year. In Italy, France, and Spain, where tourism plays a very important role, the weakened economic situation led to a double-digit decline in real GDP. On the other hand, Germany, the largest economy in the eurozone, performed much better, mainly thanks to strict crisis management and a greater emphasis on manufacturing. Unemployment rates rose in European countries. In most eurozone countries, governments launched extensive programmes with government loan guarantees to keep access to bank credit open for businesses. The European Central Bank (ECB) unveiled a new Pandemic Emergency Purchase Programme (PEPP) to counter serious risks to the monetary policy transmission mechanism and the negative outlook for the euro area. That programme, with a volume of EUR 1.85 trillion,10 was extended until March 2022. In 1
I MF: https://www.imf.org/-/media/Files/Publications/GFSR/2020/October/English/foreword.ashx (Downloaded on 19 February 2021, conversion rate of 1 EUR=1.147 USD) I MF: https://www.imf.org/-/media/Files/Publications/GFSR/2020/October/English/foreword.ashx (Downloaded on 19 February 2021, conversion rate of 1 EUR=1.147 USD) 3 I MF: https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update (Downloaded on 19 February 2021) 4 IMF: https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update (Downloaded on 19 February 2021) 5 IMF: https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update (Downloaded on 19 February 2021) 6 US Labor Statistics: https://www.bls.gov/news.release/pdf/empsit.pdf (Downloaded on 19 February 2021), page 1 7 US Bureau of Labor Statistics: https://www.bls.gov/news.release/pdf/empsit.pdf (Downloaded on 19 February 2021), page 9 8 IMF: https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update (Downloaded on 19 February 2021) 9 IMF: https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update (Downloaded on 19 February 2021) 10 ECB: https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.html (Downloaded on 19 February 2021) 2
125
