Covid will blow a $28 trillion (£21.1 trillion) hole in the world economy by 2025, leaving the entire globe significantly poorer than it would have been without the pandemic, the International Monetary Fund has warned.
The shortfall compared to pre-coronavirus forecasts amounts to a loss of around $3,500 per person over five years.
Economists have upgraded their forecasts a little for this year as countries recovered more rapidly than expected from lockdowns. But there are still serious risks of another slowdown as the virus has not yet run its course.
“This crisis will likely leave scars well into the medium term as labour markets take time to heal, investment is held back by uncertainty and balance sheet problems, and lost schooling impairs human capital,” said Gita Gopinath, chief economist at the IMF.
“The cumulative loss in output relative to the pre-pandemic projected path is projected to grow from $11 trillion over 2020-21 to $28 trillion over 2020-25. This represents a severe setback to the improvement in average living standards across all country groups.”
World GDP is set to fall by 4.4pc this year, an historic slump. This is less severe than the crash of 5.2pc projected in June, but is significantly worse than the contraction of 0.1pc in 2009 at the height of the financial crisis.
Next year GDP should rise by 5.2pc, marking a strong rebound, though it is smaller than the 5.4pc predicted in June’s IMF forecasts.
The UK economy is predicted to shrink by 9.8pc this year, a little better than the drop of over 10pc previously anticipated, recovering by 5.9pc next year.
It means the country is on for a bigger drop than the eurozone’s 8.3pc, though the recovery is also a touch better than the currency area’s predicted 5.2pc.
The US is on track for a contraction of 4.3pc while China, the first country hit by the pandemic, will eke out growth of 1.9pc over 2020 and 8.2pc in 2021.
Britain’s crunch is driven by consumer spending collapsing by more than 12pc this year and investment plunging almost 15pc, while government consumption is expected to fall 2pc.
Unemployment is predicted to rise to 5.4pc this year and 7.4pc in 2021.
Extremely high government borrowing has already forced the national debt up to more than 100pc of GDP.
By 2025 the IMF expects it to be above 107pc.
This gives Britain a debt problem in line with much of the rest of the world – total government debt internationally has also risen to above 100pc of global GDP.
The IMF praised governments for their willingness to spend big, propping up businesses and supporting jobs, but said it would result in higher taxes in the years to come.
“The considerable global fiscal support of close to $12 trillion and the extensive rate cuts, liquidity injections, and asset purchases by central banks helped saved lives and livelihoods and prevented a financial catastrophe,” said Ms Gopinath.
More is needed to boost the medical response to the pandemic and support economies as they try to recover. “It is essential that fiscal and monetary policy support are not prematurely withdrawn, as best possible,” she said.
But the debts will not go away, even if low interest rates keep the costs down.
“While low interest rates alongside the projected rebound in growth in 2021 will stabilise debt levels in many countries, all will benefit from a medium-term fiscal framework to give confidence that debt remains sustainable,” the chief economist said.
“In the future, governments will likely need to raise the progressivity of their taxes while ensuring that corporations pay their fair share of taxes, alongside eliminating wasteful spending.”