Global GDP to fall 5% this year, UK unemployment to hit 10% - NIESR

Global GDP will fall 5% this year, while the UK economy will shrink 10% and unemployment will reach 10%, according to the National Institute of Economic and Social Research.

In its latest forecasts, the think tank said the expected contraction is "a substantially larger fall than during the financial crisis, taking global GDP back to 2018 levels, with unemployment rising as a consequence".

Once economic activity re-establishes after lockdowns are lifted, the increase in output could result in substantial year-on-year increases in GDP next year, it said. NIESR expects global GDP to expand 6.25% in 2021, although this would still leave it lower at the end of next year than if the pandemic had not occurred.

"Our projections assume that as the incidence of the virus recedes, governments, aided by virus testing and healthcare measures, will ease lockdowns and that this is achieved without a major second wave of virus infections occurring, which would lead to the re-imposition of control measures," it said. "As a consequence, the worst effects of the downturn should be seen this year. But we are very mindful of the huge uncertainties, both medical and economic, around these assumptions."

As far as the UK is concerned, NIESR expects GDP to fall by 10% this year and expand by 6% in 2021.

It also said Chancellor Rishi Sunak’s "premature" end to the furlough scheme will push unemployment to approximately 10% later this year from around 4% currently. The furlough scheme is due to end in October.

NIESR deputy director Garry Young said: "The planned closure of the furlough seems to be a mistake, motivated by an understandable desire to limit spending.

"The scheme was intended by the Chancellor to be a bridge through the crisis and there is a risk that it is coming to an end prematurely."