World Economic Prospects Darken?

Economic prospects have darkened in more recent months. That’s the view of economists polled by Reuters (report on May 26,2020).

Although countries have started to ease lockdown, economists view real economy to have a deeper trough and longer period to recover. Reuters polled more than 250 economists over the past few weeks located in most major economies. To them, it looks like an obstacle course with several barriers to overcome-- not reigniting the disease, lagged effect on consumption spending, premature maxing of stimulus packages and a trade and tech war to boot.

The expectation is a U-shaped, prolonged trough with speed of recovery rather slow. The world economy is now forecasted to shrink 3.2% in 2020, while the range of forecasts include -0.3% to -6.7%. The worst- case scenario is -6.0%. Many anticipate growth of 5.4% in 2021.

Fitch Ratings (26 May 2020) is now forecasting world GDP to fall by 4.6% in 2020. Eurozone GDP will fall by 3.2% and individual economies in the Eurozone will decline as follows:

            Country                                                           %

            Spain                                                               -9.6

            Italy                                                                 -8.0

            France                                                             -7.0

            U.K.                                                                 -7.8

Emerging Markets, excluding China, will fall by 4.5% in 2020. Of this, India’s GDP will decline by 5%, Brazil (6%) and Russia (5%).

China, U.S. and Japan will register low or negative growth as follows:

            Country                                                           %

            China                                                               0.7

            U.S.                                                                 -5.6

            Japan                                                              -5.0

Fitch views the return to economic normality slow and bumpy. Fitch sees a “technical” pick up in global GDP growth to 5.1% in 2021, but pre-virus level of GDP is unlikely to be reached until mid-2022 (esp. in the U.S.).

If there is a resurgence of the virus, and further lockdowns, then the downside scenario sees GDP falling by 12% in the U.S. and Europe and global GDP down by more than 9%.

So, a vaccine is critical to staving off a major economic meltdown and depression in the major economies.

Is Malaysia prepared? An economic plan is anticipated soon but will that be enough?  Then there is a lot to be desired between plan and implementation!

References

1.     World Economic Prospects Darken, Rebound Delayed: Reuters Poll, New York Times, May 26, 2020.

2.     Fitch Ratings, Further Economic Forecast Cuts but Global Recession Bottoming Out, Tuesday, May 26, 2020.