BENGALURU – 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 percent this year compared to a 1.6 percent expansion predicted in a poll just three weeks ago, with forecasts in a range of -6.0 percent to +0.7 percent.
In a worst-case scenario, it was forecast to contract 4.9 percent this year, according to the median response to an extra question. Forecasts ranged from -9.0 percent to -1.0 percent.
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 US economy is now predicted to contract by an annualized rate of 2.5 percent in the quarter just ended and a further 20.0 percent this quarter, marking a recession. Three weeks ago, predictions were for 0.7 percent growth in Q1 and a much milder contraction of 5.0 percent in the current quarter.
But they now forecast a 10.5 percent rebound in Q3 compared with 1.5 percent in the previous poll. The median forecast for 2020 shows a 3.0 percent contraction compared with 0.5 percent in the previous poll. That will be followed by a 3.2 percent expansion in 2021, better than the 2.0 percent 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 US economy was forecast to shrink by 3.7 percent in Q1, by 31.5 percent in Q2 and 7.3 percent for 2020 as a whole. That compares with -1.0 percent, -6.0 percent and -2.0 percent, respectively, for those periods in the March 19 survey.
The euro zone economy was also forecast to fall into recession, with a 3.3 percent quarter-on-quarter contraction in Q1, followed by a median -9.3 percent forecast for Q2, bouncing back to expand 6.0 percent in Q3.
That compares with predicted expansion of 0.1 percent in Q1, 0.2 percent in Q2, and 0.3 percent 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 percent in Q1 on a quarter-on-quarter basis, then 10.0 percent in Q2, but expand 4.3 percent in Q3, leaving it 4.1 percent smaller in 2020. That compares with +0.1 percent, -0.3 percent, +0.3 percent and +0.5 percent in a Reuters poll published on March 16.
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 percent – in Q1. It is forecast to grow 3.3 percent this quarter, but with views in a wide range, from -0.5 percent to +18.0 percent.
“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.
