BENGALURU (Reuters) – The global recession that economists polled by Reuters say is under way will be deeper than thought a few weeks ago due to the coronavirus pandemic, although most are clinging to hopes for a swift rebound.
With more than 1 million cases reported, the outbreak has acted as a catalyst to an already-slowing global economy and a rout across world financial markets, wiping about $15 trillion from stock markets alone.
The April 1-3 snap poll of over 50 economists in North America, Europe and Asia showed the global economy would contract 1.2% this year compared to a 1.6% expansion predicted in a poll just three weeks ago, with forecasts in a range of -6.0% to +0.7%.
Reuters Poll: Global GDP growth outlook for 2020, https://fingfx.thomsonreuters.com/gfx/polling/jbyprkyyveo/Global%20growth%20graphic.PNG
In a worst-case scenario, it was forecast to contract 4.9% this year, according to the median response to an extra question. Forecasts ranged from -9.0% to -1.0%.
Most economists say the unprecedented amount of fiscal and monetary stimulus delivered so far will not be enough to prevent a recession, although for now they still say the blow will be punishing but temporary, with medians showing a more vigorous rebound in the third quarter.
Much of course depends on how successful governments, citizens and healthcare workers are in stopping the spread of COVID-19, including in other important countries like Brazil and India where the outbreak is in its early stages.
“This is considerably worse than the 2008-09 recession. We are cutting our forecasts once again. The lack of an effective policy response to control the spread of the virus in developed markets and some emerging markets has led us to take down 2020 global growth forecast,” said Ethan Harris, head of global economics at BofA.
“The most effective policy is a quick and strict lockdown. Delaying these policies by a week … not only affects the quarter in which the economy is shut down, but also means a deeper confidence shock and an even weaker post-shutdown recovery.”
Responding to a separate question, 11 economists said the global economy would take 3-6 months to start recovering, while nine said six months or more, including two who said one to two years. Eight said it would start within the next three months.
Economists have repeatedly slashed growth forecasts over the past month, and base case forecasts now are worse than the worst-case scenarios taken only a few weeks ago.
The U.S. economy is now predicted to contract by an annualised rate of 2.5% in the quarter just ended and a further 20.0% this quarter, marking a recession. Three weeks ago, predictions were for 0.7% growth in Q1 and a much milder contraction of 5.0% in the current quarter.
But they now forecast a 10.5% rebound in Q3 compared with 1.5% in the previous poll. The median forecast for 2020 shows a 3.0% contraction compared with 0.5% in the previous poll. That will be followed by a 3.2% expansion in 2021, better than the 2.0% expected in a March 19 poll.
While the Q3 numbers showed a rebound, the figures for this quarter have been repeatedly revised down in successive polls, suggesting they too may suffer the same fate.
In a worst-case scenario, the U.S. economy was forecast to shrink by 3.7% in Q1, by 31.5% in Q2 and 7.3% for 2020 as a whole. That compares with -1.0%, -6.0% and -2.0%, respectively, for those periods in the March 19 survey.
The euro zone economy was also forecast to fall into recession, with a 3.3% quarter-on-quarter contraction in Q1, followed by a median -9.3% forecast for Q2, bouncing back to expand 6.0% in Q3.
That compares with predicted expansion of 0.1% in Q1, 0.2% in Q2, and 0.3% in Q3 in a survey published on March 6 just as the coronavirus outbreak was accelerating in Europe.
The British economy is expected to shrink 1.6% in Q1 on a quarter-on-quarter basis, then 10.0% in Q2, but expand 4.3% in Q3, leaving it 4.1% smaller in 2020. That compares with +0.1%, -0.3%, +0.3% and +0.5% in a Reuters poll published on March 16.
Reuters Poll: Outlook for major economies , https://fingfx.thomsonreuters.com/gfx/polling/bdwpkexdpmn/Major%20economies.PNG
Recent data suggest China – where the virus originated – is moving towards a recovery. But for the first time in Reuters polling history, the world’s No. 2 economy was forecast to shrink – and by a hefty 6.5% – in Q1. It is forecast to grow 3.3% this quarter, but with views in a wide range, from -0.5% to +18.0%.
“Impressive fiscal and monetary stimulus will not be able to prevent activity from slumping in the next few months but will be key to supporting the recovery once restrictions are eased. We suspect that the trough is likely to be much deeper – and the recovery swifter – than in the 2008-09 financial crisis,” noted Marco Valli, head of macro research at Unicredit.
(Graphics by Indradip Ghosh, Vivek Mishra and Mumal Rathore; Polling by Sarmista Sen and Shaloo Shrivastava; Editing by Ross Finley and Nick Macfie)