SG News (Straits Times)

Global economy already in recession, say experts in survey

By March 22, 2020 No Comments
Seniors shop for groceries during special hours open to seniors and the disabled only at Northgate Gonzalez Market, on March 19, 2020, in Los Angeles, California.

Seniors shop for groceries during special hours open to seniors and the disabled only at Northgate Gonzalez Market, on March 19, 2020, in Los Angeles, California.

BENGALURU • The global economy is already in a recession as the hit to economic activity from the coronavirus pandemic has become more widespread, according to economists polled by Reuters amid a raft of central bank stimulus actions this week.

The spread of Covid-19 has sent financial markets into a tailspin, despite emergency stimulus measures announced by dozens of central banks across Europe, the Americas, Asia and Australia.

The panic was clear in stocks, bonds, gold and commodity prices, underlining expectations of severe economic damage from the outbreak.

In response to a question on whether the global economy was already in recession, 31 of 41 economists based in the Americas and Europe polled this week said that the current global economic expansion had already ended.

“Last week, we concluded that the Covid-19 shock would produce a global recession as nearly all of the world contracts over the three months between February and April,” noted Mr Bruce Kasman, head of global economic research at JP Morgan.

“There is no longer doubt that the longest global expansion on record will end this quarter.”

Economists have repeatedly cut their growth outlook over the past month, and have increased their forecast probabilities for recession in most major economies.

“Among the big three economies, the United States and the euro area will see negative growth, while Chinese growth is expected to come in at a paltry 1.5 per cent,” said Mr Ethan Harris, head of global economics at Bank of America.

“We now expect Covid-19 to cause a global recession in 2020, of similar magnitude to the recessions of 1982 and 2009.”

The global economy was forecast to expand 1.6 per cent this year, about half the 3.1 per cent predicted in the January poll, and the weakest since the global financial crisis of 2007 to 2009. Forecasts for this year’s global gross domestic product (GDP) ranged from minus 2 per cent to 2.7 per cent.

“As cases of coronavirus spiral upwards, disruptions to the global economy are increasing. We have cut our global GDP growth forecast to 1.25 per cent for the year,” noted Goldman Sachs’ economics research team.

“Consistent with this, our economists now expect recessions in Europe, Japan, Canada and possibly the US.”

The US economy was almost certain to enter a recession this year – if it is not in one already – according to a poll published on Thursday and taken after the Federal Reserve’s emergency move on Sunday.

“The US economy is going to have a shock from the coronavirus… There is still a lot of uncertainty around the size and the depth and the prolonged period of the shock,” said Ms Tiffany Wilding, North American economist at Pacific Investment Management Co.

As for the world’s second-largest economy, China, where the virus outbreak originated, a Reuters poll published on March 6 showed that the outlook was once again cut significantly for this quarter, next quarter, and for the year. Since then, economists have been slashing their forecasts even more.

The economic damage from the outbreak was predicted to reverberate through other major economies in Asia as well, with most forecast to slow significantly, halt or shrink outright in the current quarter, according to a Feb 26 Reuters poll.

Japan’s economy, which already contracted sharply towards the end of last year, was expected to grow only 0.1 per cent in the new fiscal year that begins in April, a March 6 Reuters survey found, revised down from the 0.5 per cent projected last month.

And following the rapid spread of virus infections in Europe, the risk of a euro zone recession has doubled, according to a Reuters poll earlier this month.