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Coronavirus markets ‘shock’ may cost £760bn and spark global recession, UN economists warn

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UNCTAD says the virus “will cause a recession in some countries and depress global annual growth this year to below 2.5%”.

Households and businesses must brace themselves for a global recession, the United Nations’ economic body has warned.

In a report which will spark memories of 2008, the UN Conference on Trade and Development warned that the COVID-19 economic “shock” could end up costing the world $1trn (£760bn) of lost income.

It also said the virus “will cause a recession in some countries and depress global annual growth this year to below 2.5% – the recessionary threshold for the world economy”.

It is the first time an international institution has raised the spectre of a global slump. UNCTAD said it expects that global growth to drop to 1.7% this year – compared with the IMF’s forecast for this year of 2.7%.

A swathe of countries, including Italy and Japan, will face recessions, it said, with the UK within a hair of one as its economic growth slows to 0.5% this year.

The new projections on gross domestic product were produced before the oil shock over the weekend, so may not reflect the full impact of that development, which has caused further falls in stock markets.

But UNCTAD’s director of Globalization and Development Strategies, Richard Kozul-Wright, said the eventual outcome could be worse still.

“Back in September we were anxiously scanning the horizon for possible shocks given the financial fragilities left unaddressed since the 2008 crisis and the persistent weakness in demand,” he said. “No one saw this coming – but the bigger story is a decade of debt, delusion and policy drift.”

He added that there was a prospect that the falls in share prices and drops in consumer demand trigger a “more vicious downward spiral”.

“Widespread insolvency and possibly another ‘Minsky moment’ – a sudden, big collapse of asset values which would mark the end of the growth phase of this cycle cannot be ruled out,” he said.

This worse-case scenario could see global economic growth drop to 0.7% in 2020, costing a total of $2trn (£1.52bn) in foregone income.

That would still be stronger than in 2008, but would nonetheless be among the worst years for the global economy in modern history.

As the scale of the economic slowdown associated with COVID-19 and the oil price war becomes clearer, economic bodies worldwide are scrambling to assess the eventual toll.

The International Monetary Fund has signalled that it is preparing to revise down its economic forecasts and Bank of England governor Mark Carney told Sky News the disease would impact the UK, given it is an open economy.

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