The Forward View – Global: August 2020

Global recovery continues but it is uneven and still a long way back to ‘normal’.

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Overview

  • The global economy continues to recover from the impact of COVID-19, and the associated societal and government response. However, there is still a long way back with progress uneven globally. Of particular concern, high frequency indicators for the US and India have stalled on the back of a resurgence of the virus, although in this regard the worst may be over for the US.
  • The global recovery is being reflected in financial markets. Equity markets continue to recover, market volatility and spreads have eased and commodity prices have turned up. In contrast bond yields remain low reflecting the likely longer term fall out for economies and monetary policy.
  • Incoming Q2 GDP data confirm a massive hit to advanced economies (AEs) from the response to COVID-19, including stringent containment measures. GDP fell by 9.5% q/q in the US, 20% in the UK and by 12.1% q/q in the Euro-zone; this was on top of smaller Q1 declines. The trough in activity across the AEs was centred on April and the subsequent recovery sets the stage for strong growth in Q3, although some countries have imposed some regional restrictions which are also acting as a brake on the recovery. A full recovery will take a long time.
  • Trends are mixed across the Emerging Market economies. China’s economy, the first to be impacted by COVID-19, recovered more strongly than expected in Q2, albeit unevenly, and GDP is now above its Q4 2019 level. In contrast, India’s recovery appears to have stalled and COVID-19 continues to spread rapidly in Latin America.
  • Our global forecast is marginally weaker this month at -3.8% for 2020 and +5.9% for 2021. How the virus spreads, and how countries respond (including maintaining appropriate fiscal support), is likely to remain a key driver of economies and so it remains a key risk for our projections.

For further details, please see The Forward View – Global August 2020