Global economy seen to contract at steepest rate on record this year

An empty market street in Naples, Italy, on April 12. The global economy is more likely to see a longer, U-shaped recovery after being pummelled into recession by the coronavirus pandemic, according to Reuters polls of economists from around the worl
An empty market street in Naples, Italy, on April 12. The global economy is more likely to see a longer, U-shaped recovery after being pummelled into recession by the coronavirus pandemic, according to Reuters polls of economists from around the world. The global economy is forecast to shrink 2.0 per cent this year, compared with a 1.2 per cent contraction predicted just three weeks ago.PHOTO: NYTIMES

BENGALURU • Pummelled into recession by the coronavirus pandemic, the global economy will suffer its steepest contraction on record this year, with a longer, U-shaped recovery more likely, according to Reuters polls of economists from around the world.

Many countries are under lockdowns to curb the spread of an outbreak in which more than 2.7 million people worldwide have been infected and over 190,000 have died, bringing global economic activity to a halt, particularly in the services industry.

Reuters polls of more than 500 economists who were surveyed over the past few weeks showed that most major economies were in the midst of a severe economic downturn and their recoveries were predicted to be U-shaped.

More than 55 per cent or 87 of 155 economists said the global economic recovery would be U-shaped. Thirty-one analysts said it would be V-shaped and 24 said it would be more like a check mark. A few respondents expected a W-or L-shape.

The global economy was forecast to shrink 2.0 per cent this year, compared with a 1.2 per cent contraction predicted just three weeks ago and growth of 1.6 per cent forecast before that in the March 20 poll, underscoring how fast the outlook has deteriorated.

Forecasts ranged between +0.6 per cent and -6.0 per cent.

The latest private-sector view is a bit less pessimistic than the International Monetary Fund's (IMF) latest forecast for a 3.0 per cent contraction this year, but is a volte-face from a 3.3 per cent growth predicted at the start of the year before the global outbreak.

"The global economy is collapsing at a pace not seen since World War II," noted Dr Michael Hanson, senior global economist at JPMorgan.

He added that unprecedented policy support meant that the global economy would begin a rebound faster than in a typical recession, but activity would remain depressed to the end of next year. "Staggered reopenings of economies until a vaccine is widely available imply more of a U-rather than a V-shaped recovery for the global economy."

Global growth next year was forecast to bounce back to 4.5 per cent in the latest poll, significantly weaker than the IMF's prediction of 5.8 per cent growth.

In several Reuters polls over the past two months, economists - who are generally more upbeat about the economic environment - have turned extremely cautious, with an increasing number of them slashing their already bleak forecasts repeatedly for developed and emerging economies alike.

VAST IMPLICATIONS

What is already clear is that this is not just a short-term issue: The medium-to long-term implications for global growth, debt levels, public policy and globalisation are going to be vast.

HSBC GLOBAL CHIEF ECONOMIST JANET HENRY, on the pandemic's impact.

Gross domestic product forecasts, polled by Reuters this month, for all 42 economies were downgraded for this year and expectations for next year were modest at best.

That suggests that the unprecedented amounts of fiscal and monetary support from governments and central banks globally will at best soften the blow from the pandemic.

But nearly 90 per cent of economists, or 147 of 165, said the risks to their forecasts for the second half of this year were skewed more to the downside, suggesting that the outlook is likely to be downgraded again if the pandemic worsens.

"What is already clear is that this is not just a short-term issue: The medium-to long-term implications for global growth, debt levels, public policy and globalisation are going to be vast," said HSBC global chief economist Janet Henry.

The United States economic recession looks to be much worse than thought just a few weeks ago.

The euro zone economy is set for its deepest recession on record and the British economy is also expected to suffer its worst peacetime downturn ever.

The downturn has hammered the US labour market, where unemployment was near historic lows before the crisis. A record 26 million Americans sought unemployment benefits over the past five weeks, which meant that all the jobs created during the longest employment boom in US history were wiped out in about a month.

Unemployment rates in most major economies polled were predicted to soar in coming months.

Developing economies from Asia to Africa, Europe and Latin America were expected to struggle with limited firepower for governments and central banks there forced to fight deep downturns and recessions.

"Many emerging market economies opted for lockdowns only relatively late, partly because they recognised the severity of the outbreak late - in the absence of testing, but partly also because they feared the economic consequences, especially for the poor," said Barclays head of economic research Christian Keller.

REUTERS

A version of this article appeared in the print edition of The Straits Times on April 25, 2020, with the headline 'Global economy seen to contract at steepest rate on record this year'. Subscribe