Economists Now See Global Recession Lasting Longer Than Two Quarters

Coronavirus spread infograph

April 26, 2020//-Economists have once again downgraded their outlook for the global economy, as lockdown measures are extended and more data reflects the unprecedented hit to economic activity.

According to a 20–21 April survey of 61 panelists, 28% now see the coronavirus pandemic hitting 2020 global growth by more than five percentage points, up from 19% in last week’s report.

For the first time, a majority of the economists surveyed see the global recession lasting longer than two quarters, with a significant number expecting a downturn of five quarters or more.

Risks to the outlook are unusually elevated, due to uncertainty over the evolution of the pandemic, the duration of worldwide containment measures, the effectiveness of stimulus packages and the development of a vaccine.

Most panelists continue to expect a U-shaped recovery, implying only a gradual rebound in activity, with a smaller proportion of panelists projecting V (which implies economic activity will suddenly rebound), L (a very slow recovery) and W (a short period of recovery followed by a second downturn and subsequent recovery) shapes.
Roughly three-quarters of panelists expect further monetary easing from major central banks on top of the substantive measures already announced, with many panelists expecting further steps to boost liquidity.

Concerted action from central banks and governments should avoid a broader financial crisis according to panelists, although some economists continued to highlight high debt levels as a key risk factor.

Insight from panelists

“For China, since the virus has been controlled since March, economic activity has largely resumed. In addition, Chinese authorities have implemented a series of easing measures to stimulate growth.

That means the Chinese economy this time might lead the global recovery”, Jinyue Dong, senior China economist at BBVA, said.

“The LATAM region is more exposed to adverse termsof-trade shocks (given its role as a global inputs supplier), along with lack of policy space (due to higher fiscal deficits, lack of institutional credibility for some economies) and less access to international debt markets”, according to Luis Arturo Bárcenas, senior economist at Ecoanalítica.

“Latin America is in the southern hemisphere, the peak of Covid-19 has not yet come & winter is coming, that implies more quarantine measures. Moreover, Latin America has low buffers”, Lorenzo Sigaut Gravina, partner & director at Ecolatina, added.

“Europe already has underlying weakness in the financial sector, thus making it easier for things to get worse. We also have some concerns over Asian countries. Their FDI-export led model will be tested as manufactures rethink their supply-chain strategy”, Charl Kengchon, executive chairman at Kasikorn Research, said.

“In relative terms the hit for the US will be much stronger than in previous crises (e.g. compared to the GFC). The first signs of lockdown reversal in Europe are a very positive sign, as this will be key that the monetary and fiscal stimulus can take hold in H2 2020″, Gunter Deuber, head of economics research at Raiffeisen
Bank International, noted.

“The impact of Covid-19 on the global economy is believed to be worsening, with expectations themselves worsening each week. Indeed, worsening forecasts of the economic impact of Covid-19 has been a key driver of the elevation in risk aversion in global financial markets, with the global recession expected to be deep
and lengthy.

However, the economic growth outcome will depend on the pace of the further opening up of economies. Uncertainty heightens risk aversion in financial markets and the deep recessions forecast around the globe exacerbate risk-off sentiment”, Annabel Bishop, chief economist at Investec Ltd, explained.

“It is needless to say that the recovery in global economic activity will go hand in hand with the containment of
the virus. The extent to which current downside risks materialize will largely depend on the size of second
coronavirus waves around the world”, Andrej Drygalla, economist at the Halle Institute for
Economic Research, said.

“Financial sectors have increased resilience and policies are in place that shelter the financial sectors if necessary
in most advanced economies. There is an increasing risk of financial stress in emerging economies, however”,  Klaus-Jürgen Gern, senior economist at the Kiel Institute for the World Economy, further explained.

“We are facing the toughest economic crisis in a century, and the only way to get out of it quickly and with minimum damage is through multilateral cooperation and deeper economic integration. The risk to more protectionism is alive, and if that path is taken, the individual economies of most countries will experience deeper wounds and difficult times for the world would follow”, according to Mario Correa, chief economist at Scotiabank Mexico.

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