"This is a crisis like no other, and there is substantial uncertainty about its impact on people's lives and livelihoods," chief economist Gita Gopinath said in its latest World Economic Outlook report.
Real gross domestic product growth (GDP) is now projected at -3.0 per cent in 2020, a recession much worse than the 0.1 per cent contraction during the 2009 global financial crisis.
The growth forecast is marked down by more than 6 percentage points relative to IMF's January update of 3.3 per cent growth – an extraordinary revision over such a short period.
"The Great Lockdown, as one might call it, is projected to shrink global growth dramatically. A partial recovery is projected for 2021, with above trend growth rates, but the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound," she said.
Much worse growth outcomes are possible and maybe even likely.
This would follow if the pandemic and containment measures last longer, emerging and developing economies are even more severely hit, tight financial conditions persist, or if widespread scarring effects emerge due to closures and extended unemployment, she warned.
Gita said this crisis will need to be dealt with in two phases: a phase of containment and stabilisation followed by the recovery phase. In both phases, public health and economic policies have crucial roles to play.
"Quarantines, lockdowns, and social distancing are all critical for slowing transmission, giving the health care system time to handle the surge in demand for its services and buying time for researchers to try to develop therapies and a vaccine. These measures can help avoid an even more severe and protracted slump in activity and set the stage for economic recovery," she said.
The chief economist said increased health care spending is essential to ensure health care systems have adequate capacity and resources. Special dispensations for medical professionals — who are on the frontlines of combating the pandemic — should be considered, including, for example, education allowances for their families or generous survivor benefits.
While the economy is shut down, policymakers will need to ensure that people are able to meet their needs and that businesses can pick up once the acute phases of the pandemic pass, said Gita.
"This requires substantial targeted fiscal, monetary, and financial measures to maintain the economic ties between workers and firms and lenders and borrowers, keeping intact the economic and financial infrastructure of society."
For example, in emerging market and developing economies with large informal sectors, new digital technologies may be used to deliver targeted support, she added.
Elaborating on the growth outlook, the report released by the Washington-based organisation said growth in the advanced economy group — where several economies are experiencing widespread outbreaks and deploying containment measures — is projected at -6.1 per cent in 2020.
Most economies in the group are forecast to contract this year, including the United States (-5.9 per cent), Japan (-5.2 per cent), the United Kingdom (-6.5 per cent), Germany (-7.0 per cent), France (-7.2 per cent), Italy (-9.1 per cent), and Spain (-8.0 per cent).
In parts of Europe, the outbreak has been as severe as in China's Hubei province. Although essential to contain the virus, lockdowns and restrictions on mobility are extracting a sizable toll on economic activity.
Among emerging market and developing economies, all countries face a health crisis, severe external demand shock, dramatic tightening in global financial conditions, and a plunge in commodity prices, which will have a severe impact on economic activity in commodity exporters, said the report.
Overall, the group of emerging market and developing economies is projected to contract by 1.0 per cent in 2020; excluding China, growth rate for the group is expected to be – 2.2 per cent.
The ASEAN-5 — the biggest economies in ASEAN — is projected to see their GDP shrink by 0.6 per cent.