Overview

• There was a massive plunge in activity across many countries in March/April, with the notable exception of China where the fall in activity was earlier (February). However, high frequency indicators point to an upturn in activity in May and into early June and business surveys have shown some improvement even if they still remain very weak. This has translated into an improvement in financial and commodity markets, although they have not fully recovered and there remains a degree of stress.
• The extent of the falls in activity that have been seen mean that extremely large falls in Q2 GDP for many advanced and emerging economies are likely, although with activity now strengthening, there may be a (partial) bounce back in Q3. We continue to expect that a full recovery will take a long time – including because of relatively weak consumption (due to high unemployment and caution due to COVID-19), permanent business failures caused by the recession, some long lasting structural changes which will take time to adjust to, and damaged balance sheets, including for governments.
• How governments manage the expiration of their COVID fiscal measures over time – some due to happen in coming months – looms as a key issue and a major source of uncertainty (together with the risk of a second wave of virus infections). In contrast, central bank policy is likely to remain highly supportive, if not eased further in countries with policy room, given the still weak level of activity and the likely deflationary impact of the recession.
• We expect the global economy to contract by 3.7% in 2020 (previously 3.8%), before increasing by 6.2% (previously 6.5%) in 2021. While there is a high degree of uncertainty over any forecast in the current environment the extent of the declines already seen to-date, combined with our expectation that a full recovery will take time, points to 2020 having the largest fall in annual growth since at least the 1950s, and most likely since the Great Depression.

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