The speed at which the Covid-19 pandemic is evolving across the US, the UK and Europe will cause a deep global recession in 2020 and has necessitated another round of cuts to GDP forecasts, according to a Fitch Ratings’ Global Economic Outlook (GEO) forecast.
World economic activity, according to the forecast, is expected to decline by 1.9% in 2020 with the US, eurozone and UK GDP down by 3.3%, 4.2% and 3.9%, respectively.
China's recovery after the Covid-19 disruption in the first quarter of the year will be sharply curtailed by the global recession and its annual growth will be below 2%, the report predicts.
"The forecast fall in global GDP for the year as a whole is on a par with the global financial crisis, but the immediate hit to activity and jobs in the first half of this year will be worse", says Brian Coulton, Fitch's chief economist.
The spread of the pandemic and the actions necessary to control it, particularly the full-scale lockdowns across Europe, the US, and many other countries, were not part of the assumptions used in the agency’s March 2020 GEO forecast. “There are many moving parts, but we now judge that lockdowns could reduce GDP across the EU and US by 7% to 8%, or 28% to 30% annualised, in 2Q20,” the most recent report notes. “This is an unprecedented peacetime one-quarter fall in GDP and is similar to what we now estimate occurred in China in 1Q20.
“On the assumption that the health crisis is broadly contained by the second half of the year, there should be a decent sequential recovery in activity as lockdowns are removed, some spending is re-profiled from 1H20, inventories are rebuilt and policy stimulus takes effect. But this has to be set against the many factors amplifying the depth of the dislocation, including job losses, capex cuts, commodity price shocks and the rout in financial markets.”
Coulton adds: "Our baseline forecast does not see GDP reverting to its pre-virus levels until late 2021 in the US and Europe."