The global economy is in a worse shape than it was during the 2008 financial crisis as the pandemic triggered the complete closure of entire industries in some cases, the UN Trade and Development Agency (UNCTAD) warned Tuesday in a report.
UNCTAD's Secretary-General Mukhisa Kituyi said the world has faced unprecedented demand shocks in most economies.
The COVID-19 pandemic mitigation and lockdowns will be devastating for all economies, independent of their links to global supply networks.
Kituyi spoke to journalists in a video briefing from Geneva for the release of the 30th edition of the World Investment Report by UNCTAD.
The report looks at global foreign direct investment (FDI) and international production during and beyond the COVID-19 crisis.
It projects the immediate impact of the crisis on investment flows and assesses the impact of the pandemic on the long-term structural transformation of international production.
"The global economy is in a direr situation than it was during the 2008 financial crisis. COVID-19 has resulted in production stoppages and supply chain disruptions in most sectors, complete closures of entire industries, and unprecedented demand shocks in most economies," said Kituyi.
The report cites examples of industries in Australia, France, Hong Kong, Luxembourg, Macao, New Zealand, where merger and acquisition transactions were canceled due to pandemic-related reasons
Global FDI flows are forecast to decrease by up to 40% in 2020, from their 2019 value of $1.54 trillion.
UNCTAD said this would bring FDI below $1 trillion for the first time since 2005.
FDI is projected to decrease by a further 5 to 10% in 2021 and to initiate a recovery in 2022. A rebound in 2022, with FDI reverting to the pre-pandemic underlying trend, is possible, but only at the upper bound of expectations.
The UN agency said the outlook is highly uncertain.
"Prospects depend on the duration of the health crisis and on the effectiveness of policy interventions to mitigate the economic effects of the pandemic.
"Geopolitical and financial risks and continuing trade tensions add to the uncertainty," said the report.
The economic impact of COVID-19 will hit developing countries hard, especially in structurally vulnerable economies in Africa and at least developed countries in all regions.
There are disruptions to major productive sectors and industries, declining remittances and receipts from tourism and contracting world trade projected.
The shock will be further aggravated by the impact on food security as the production of major food items is concentrated in a few big countries where the pandemic is expanding.
Managing the disease is only part of the persistent challenges facing developing economies.
The pandemic's development is aggravated by decreasing demand, and falling prices of natural commodities, especially oil said the report.
"The dual shock of COVID-19 and falling commodity prices put many countries in precarious economic and financial positions, undoing progress towards structural transformation and economic diversification," said UNCTAD.