Global Economy Reviews

06.07.2020 20:46 World Economy Review - June 2020

The International Monetary Fund slashed its economic forecasts once again on Wednesday and warned that public finances will deteriorate significantly, as governments attempt to combat the fallout from the coronavirus crisis.

The IMF now estimates a contraction of 4.9% in global gross domestic product in 2020, lower than the 3% fall it predicted in April.

“The Covid-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” the IMF said in its World Economic Outlook update.

The fund also downgraded its GDP forecast for 2021. It now expects a growth rate of 5.4% from the 5.8% forecast made in April (the positive reading reflects that economic activity will be coming from a lower base following 2020′s heavy contraction).

The Washington-based institution explained that the downward revisions were due to social distancing measures likely remaining in place during the second half of the year, with productivity and supply chains being hit. And in those nations still grappling with high infection rates, the fund expects that longer lockdowns will dent economic activity even more.

The IMF cautioned that the forecasts are surrounded with unprecedented uncertainty and economic activity will depend on factors such as the length of the pandemic, voluntary social distancing, changes to global supply chains and new labor market dynamics.

“The steep decline in activity comes with a catastrophic hit to the global labor market,” the IMF said, indicating that the global decline in work hours in the second quarter of the year is likely to be equivalent to a loss of more than 300 million full-time jobs.

“The hit to the labor market has been particularly acute for low-skilled workers who do not have the option of working from home. Income losses also appear to have been uneven across genders, with women among lower-income groups bearing a larger brunt of the impact in some countries,” the IMF said.

Looking at country forecasts, the United States is expected to contract by 8% this year. The IMF had estimated a contraction of 5.9% in April. Similarly, the fund also downgraded its forecasts for the euro zone, with the economy now seen shrinking by 10.2% in 2020. Brazil, Mexico and South Africa are also expected to contract by 9.1%, 10.5% and 8%, respectively.

In order to mitigate some of the economic impact from the pandemic, governments across the world have announced massive fiscal packages and new borrowing. As a result, public finances are seen deteriorating significantly as a result.

“The steep contraction in economic activity and fiscal revenues, along with the sizable fiscal support, has further stretched public finances, with global public debt projected to reach more than 100% of GDP this year,” the fund said.

Under the IMF`s base case, global public debt will reach an all-time high in 2020 and 2021 at 101.5% of GDP and 103.2% of GDP, respectively. In addition, the average overall fiscal deficit is set to soar to 13.9% of GDP this year, 10 percentage points higher than in 2019.

There have been more than 9 million confirmed infections worldwide from Covid-19, according to Johns Hopkins University. The United States, Brazil and Russia are currently the nations with the highest number of cases globally.

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05.04.2020 19:41 World Economy Review - March 2020

The coronavirus crisis is crushing global economic growth, according to Fitch Ratings in its latest quarterly "Global Economic Outlook” (GEO). "The level of world GDP (gross domestic product) is falling. For all intents and purposes we are in global recession territory," said Brian Coulton, chief economist at Fitch.

The firm has nearly halved its baseline global growth forecast for 2020 to just 1.3 per cent from 2.5 per cent in the December 2019 GEO. The revision leaves 2020 global GDP US$850 billion lower than in the previous forecast. “But we could very easily see an outright decline in global GDP this year if more pervasive lockdown measures have to be rolled out across all the G7 economies.

“Emergency macro policy responses are purely about damage limitation at this stage but should help secure a `V-shaped` recovery in 2H20, although this assumes that the health crisis eases.” Fitch said the shock to the Chinese economy had been very severe.

“GDP is likely to fall by over five per cent (not annualised) in 1Q20 and to be down by one per cent year-on-year. Falling GDP in China is virtually unprecedented and, in the near term at least, these numbers look worse than most previous hypothetical `hard-landing` scenarios.”

The good news is that the daily number of new Covid-19 cases in China has fallen very sharply, which should pave the way for a marked economic recovery in 2Q19 - high-frequency indicators already point to this starting in March.

Nevertheless, Fitch said the delayed impact of supply-chain disruptions and lower Chinese demand on the rest of the world would continue to be felt profoundly for some time, particularly in the rest of Asia and the eurozone.

The interruptions to economic activity seen in China - and now in Italy - are on a scale and speed rarely seen other than during periods of military conflict, natural disasters or financial crises. Even though Fitch expects a recovery in China from 2Q20, Chinese growth is expected to fall just 3.7 per cent for the year as a whole, down from 6.1 per cent in 2019.

“We forecast Italian GDP to fall by teo per cent this year and Spanish GDP by almost one per cent,” it added. Fitch said its baseline forecasts do not yet assume that full-scale lockdowns take place in across all the major European countries or the US (forecasts were finalised on 16 March).

”But even on this basis we now expect eurozone growth to be minus 0.4 per cent this year. The baseline forecast for US growth is one per cent in 2020 compared with a pre-virus outlook of two per cent and GDP is expected to fall by 0.5 per cent (or two per cent annualised) in 2Q20.“

It expects global growth to fall to 1.3 per cent in 2020 from 2.7 per cent in 2019, which would be weaker than global downturns in the early 1990s and in 2001. Fitch`s oil price forecast has been lowered to US$42/bbl (Brent) for 2020 (annual average) from US$62.5/bbl in the December GEO.

“With the collapse of `OPEC+` co-operation boosting prospects for OPEC supply, we now expect oil prices to average US$48/bbl in 2021 compared to our previous forecast of US$60/bbl,” it said.

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24.02.2020 21:25 World Economy Review - January 2020

Moody`s has revised its global GDP growth forecast down considering the adverse impact of COVID-19 on the world`s economy.

“We have revised our global GDP growth forecast down, and we now expect G-20 economies to collectively grow 2.4% in 2020, a softer rate than last year, followed by a pickup to 2.8% in 2021,” Moody`s said in a report.

“We have reduced our growth forecast for China to 5.2% in 2020 and maintain our expectation of 5.7% growth in 2021. We have also lowered our real GDP growth forecast for Australia, Korea and Japan on account of the coronavirus,” it said.

Additionally, it has reduced its growth projections for India, Mexico and South Africa, a reflection of domestic challenges in those countries rather than external factors.

Stating that the coronavirus outbreak had diminished optimism about prospects of an incipient stabilization of global growth this year, Moody`s said since the virus was continuing to spread, it was still too early to make a final assessment of the impact on China and the global economy.

“Our baseline assumes the outbreak will cause disruption in Q1 economic activity. Under our baseline forecast, the spread of the coronavirus will be contained by the end of Q1, allowing for resumption of normal economic activity in Q2,” it said.

At present, China`s economy is by far the worst affected. However, the rest of the world also has exposure as a result of a hit to global tourism in the first half of this year and short-term disruptions to supply chains, the rating agency said.

The effects on the global economy could compound if the rate of infection did not abate and the death toll continued to rise, because supply chain disruptions in manufacturing would become more acute the longer it takes to restore normalcy, it added.

On the impact on India, it said that the economic recovery will likely be shallow.

“India`s economy has decelerated rapidly over the last two years. Real GDP grew at a meagre 4.5% in Q3 2019. Improvements in the latest high frequency indicators such as PMI data suggest that the economy may have stabilized,” it said.

“While the economy may well begin to recover in the current quarter, we expect any recovery to be slower than we had previously expected. Accordingly, we have revised our growth forecasts to 5.4% for 2020 and 5.8% for 2021, down from our previous projections of 6.6% and 6.7%, respectively,” it added.

A key to stronger economic momentum would be the revival of domestic demand, both rural and urban. But equally important is the resumption of credit growth in the economy, Moody`s said.

“As data from the Reserve Bank of India (RBI) shows, credit impulse in the economy has deteriorated throughout the last year as a result of the drying up of lending from non-bank financial institutions as well as from banks. Banks have been both unwilling to lend and to lower lending rates despite successive interest rate cuts by the central bank,” it said.

“As a result, non-food bank credit growth decelerated to 7.0% in nominal terms in December 2019, down sharply from 12.8% a year earlier. The deterioration in credit growth to the commercial sector is particularly stark,” it added.

Nominal credit to industry grew at only 1.6% year-on-year in December 2019, while credit to the services sector registered 6.2% nominal growth, and credit to agriculture and related activities grew 5.3%, Moody`s said.

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19.12.2019 15:10 World Economy Review - November 2019

The OECD trimmed its 2020 global economic growth forecast and said it did not see a strong rebound in 2021 owing to risks stemming from trade tensions.

The Paris-based Organization for Economic Co-operation and Development now estimates that business activity around the world will expand by 2.9 per cent next year, a decline of 0.1 percentage points from a previous forecast issued in September.

In 2021, the OECD, which groups the world`s wealthiest nations, sees global economic growth edging back up to 3.0 per cent, according to its November 2019 Economic Outlook.

OECD chief economist Laurence Boone noted that "for the past two years, global growth outcomes and prospects have steadily deteriorated, amidst persistent policy uncertainty and weak trade and investment flows."

She said that while central banks had taken decisive and timely monetary decisions that partly offset negative effects of trade tensions, most governments had not done so on a fiscal level, for example by investing in long-term projects to improve infrastructure, advance digitalization of their economies and limit climate change.

Owing to "persistent policy uncertainty and weak trade and investment flows," she said the OECD now saw the global economy expanding at "the weakest rate since the global financial crisis" erupted in 2007.

The US economy, the world`s biggest, "is expected to slow to 2.0 percent by 2021, while growth in Japan and the euro area is expected to be around 0.7 and 1.2 percent respectively."

In China, the second biggest economy worldwide, growth was forecast to "continue to edge down, to around 5.5 percent by 2021," Boone said. Other emerging-market economies are expected to recover "only modestly," she added.

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15.10.2019 14:48 World Economy Review - September 2019

The global economy may weaken to a pace not seen since the financial crisis as the impact of the Trump administration`s trade war and Brexit erode confidence and investment, the Organisation for Economic Cooperation and Development said in a report.

Global economic growth is likely to slow to 2.9% in 2019 and 3% in 2020, the weakest annual growth rates since the 2008 financial crisis, the economic research organization said. The trade war between the U.S. and China as well as other trade tensions are "endangering future growth prospects," the group added.

Economic growth in the U.S. will slow to 2% next year, the OECD forecast. By comparison, the Trump administration has targeted 3% annual GDP growth.

The OECD`s latest outlook is a downgrade on the group`s 2018 forecast that global economic growth would reach 4% in 2019, OECD chief economist Laurence Boone wrote in a blog post. Trade disputes between the U.S. and China, Europe and other countries is causing some businesses to hold off on investing in new equipment or hiring, while U.S. manufacturing has fallen into recession despite President Donald Trump`s vows to revive the sector.

"An urgent response is required, failing which we run the risk of finding ourselves stuck in a long period of low growth, the brunt of which will be felt primarily by the most vulnerable," Boone wrote.

The outlook for economic growth has been revised downward for almost all G20 countries, the OECD said. The G20 includes the EU and 19 other countries, including the U.S., Canada and Mexico.

The trade war between the U.S. and China will "exert a significant drag on global activity and trade over the next two years," the report noted.

"All told, the U.S.-China measures could reduce global GDP growth by between 0.3-0.4 percentage points in 2020 and 0.2-0.3 percentage points in 2021," the report forecast. "China and the United States would be most affected by these shocks."

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