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Ifo: Global economy will shrink by more than 4% in 2020

Jill Petzinger
·Germany Correspondent, Yahoo Finance UK
·2-min read
Digital generated image of financial line chart showing fallings because of coronavirus COVID-19 on blue background.
Economists believe recovery from the coronavirus pandemic will be slower than during the global financial crisis. Photo: Getty

Economic experts predict that the coronavirus pandemic will result in a 4.4% contraction in the global economy in 2020.

Germany’s Ifo Institute and the EconPol Europe research network polled 950 economic experts across 110 countries for the survey, released on Wednesday.

The consensus is that the global economy will shrink by over 4% this year, and recover slowly next year to achieve 3.2% growth. However, those polled believe that in many countries, recovery could drag on until at least 2022 before pre-crisis levels are reached again.

Experts in advanced economies including the US and EU cited fiscal aid for small and medium-sized companies as the most effective measure to aid recovery in developed economies.

READ MORE: Germany extends short-time work support until end of 2021

Respondents in emerging and developing countries in Asia, Latin America, and Africa said improvements to healthcare systems should be a priority of economic policy.

Economists also cited tax deferrals for companies, job retention work schemes, and additional childcare support as important aids to recovery. Only those polled in the US were less convinced about the positive effects of temporary tax deferrals.

The German government announced in September that it would extend its short-time work scheme until the end of 2021. The ‘Kurzarbeit’ job retention programme was deployed to good effect during the 2008 financial crisis and is lauded for allowing companies to keep hold of trained staff and ramp up production quickly again once the economy begins to recover.

According to the Munich-based Ifo institute, 37% of Germany companies surveyed had workers on short-time hours in August, down from 42% in July.

READ MORE: UK chancellor says 'job done' on furlough despite rising unemployment

In the UK, the government has refused to extend the furlough scheme beyond the end of October. Chancellor Rishi Sunak said figures showed more than half of furloughed workers had returned to their jobs by mid-August.

Sunak said the government will instead give employers bonuses for keeping staff and fund youth work placements as the furlough scheme winds down. Economists, business chiefs and Labour warned that a wave of job losses will continue this autumn without more support for employers.

WATCH: What is the UK’s new job support scheme?