The world economy is entering the second half of 2020 still deeply weighed down by the coronavirus pandemic with a full recovery now ruled-out for this year and even a 2021 comeback dependent on a lot going right.
It’s a scenario few if any predicted at the start of the year when most economists were banking on another year of expansion and a US and China trade agreement was meant to give corporate and investor confidence a shot in the arm.
Instead, the rare pandemic forced swathes of the global population into what the International Monetary Fund dubs ‘The Great Lockdown.’ Central banks and governments responded with trillions of dollars in unprecedented support to prevent markets from melting down and to keep furloughed workers and struggling companies afloat until the virus passed.?
Even with those rescue efforts, the world is still suffering its worst economic crisis since the Great Depression.
While some gauges of manufacturing and retail sales in major economies are showing improvement, hopes for a V-shaped rebound have been shattered as the reopening of businesses looks shaky at best and job losses risk turning from temporary to permanent.
It’s an economic trajectory Federal Reserve Bank of Richmond President Thomas Barkin has likened to riding the elevator down, but needing to take the stairs back up.
“There is a real danger of confusing rebound with recovery,” Carmen Reinhart, the World Bank’s chief economist, said at the Bloomberg Invest Global conference on June 23. “True recovery means you are at least as well off as you were before the crisis started and I think we are a long way off that.”
Much depends on the spread of the coronavirus, a vaccine for which remains out of grasp.
The World Health Organisation warns the worst of the pandemic is still to come as cases top 10mn and deaths have risen beyond 500,000.
And even in countries where the virus appeared contained, fresh flare ups are frequent. The IMF estimates that by the end of this year 170 countries – or almost 90% of the world – will have lower per capita income.
That’s a reversal from January, when it predicted 160 countries would end the year with bigger economies and positive per capita income growth.
It’s now likely that global gross domestic product by the end of 2021 will in many cases still be lower than where it was at the end of 2019, according to HSBC Holdings Plc economists led by Janet Henry.
Federal Reserve chairman Jerome Powell has warned the outlook is “extraordinarily uncertain” and European Central Bank president Christine Lagarde has spoken of a “restrained” recovery that will change parts of the economy permanently. Longer lasting lockdowns, a ceiling on activity for contact-intensive sectors, the scarring impact of high unemployment, and stimulus that – in some important parts of the world – is falling short, all weigh on the outlook.
Bloomberg Economics is lowering its estimate for global growth in 2020, and anticipates a weaker recovery into 2021.
Morgan Stanley economists are sticking to forecasts of a V-shaped recovery, pointing to positive surprises in recent economic data, especially in the US and euro region.
Goldman Sachs Group Inc economists revised down their estimates for the US economy this quarter, but predicted it will be back on track in September.
Global markets are split between investors who are betting on a V-shape recovery, and those expecting significant dislocations.
The MSCI All-Country World Index of global stocks has gained nearly 40% from a March low, but is still down about 6% this year, as investors bet policy stimulus around the world will cushion the economic impact from the pandemic.
US 10-year Treasury yields have tumbled by more than 100 basis points this year to around 0.67%. Mixed Performance Lessons on how the recovery plays out are being drawn from Asia where the virus has been brought under control but the rebound has been mixed. In South Korea, which flattened its infection curve months ago, the emergence of new virus clusters is casting a chill on shoppers.
China’s manufacturing activity climbed in June, as did other manufacturing gauges across the region, yet new orders continue to show weakness.
Read Bloomberg’s Trade Tracker for more on the outlook for demand That worrisome outlook means businesses are navigating in the dark, according to Joerg Wuttke, president of the EU Chamber of Commerce in China, who expects the uncertainty to last for another couple of years.
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