Global economy already in recession on coronavirus devastation

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 the disease caused by the virus, COVID-19, has sent financial markets into a tailspin despite some of the biggest emergency stimulus measures since the global financial crisis 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.

More than three-quarters of economists based in the Americas and Europe polled this week, 31 of 41, said the current global economic expansion had already ended, in response to a question about whether the global economy was already in recession.

“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 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. The key outlook issue now is gauging the depth and the duration of the 2020 recession.”

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

The worst-case views on growth taken just weeks ago in some cases have already into the central scenario for private sector economists in Reuters polls.

“The evolving news on COVID-19 has triggered ‘forecast leap frogging,’ with economists and strategists repeatedly lowering their forecasts. Among the big three economies, the US and the euro area will see negative growth, while Chinese growth is expected to come in at a paltry 1.5 percent,” said Ethan Harris, head of global economics at BofA.

“Our first piece on the virus shock was titled ‘bad or worse’; now we amend that to ‘really bad or much worse.’ 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 percent this year, about half the 3.1 percent predicted in the January poll, and the weakest since the global financial crisis of 2007-09. Forecasts for 2020 global GDP ranged from -2.0 percent to +2.7 percent.

“As cases of coronavirus spiral upward, disruptions to the global economy are increasing. We have cut our global GDP growth forecast to 1.25 percent for the year - less severe than the deep recessions of 1981-82 and 2008-09, but worse than the mild recessions of 1991 and 2001,” noted Goldman Sachs’ economics research team.

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

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 this coronavirus and I think that there’s still a lot of uncertainty around the size and the depth and the prolonged period of the shock,” said Tiffany Wilding, North American economist at Pacific Investment Management Co (PIMCO).

“We’re still getting our heads wrapped around that. We think it’s quite likely that the US has a small technical recession this year.”

As for the world’s second largest economy, China, where the virus outbreak originated, a Reuters poll published on March 6 showed the outlook was once again cut significantly for this quarter, next quarter, and for 2020. 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 too, 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 toward the end of 2019, was expected to grow only 0.1 percent in the new fiscal year that begins in April, a March 6 Reuters survey found, revised down from 0.5 percent projected in February.

Following the rapid spread of virus infections from China to other countries, including Europe, the risk of a euro zone recession doubled in a poll taken earlier this month.

It was not very different for the UK, where the Bank of England cut rates to near-zero on Thursday and re-started its asset purchases.

The British economy was expected to expand 0.1 percent this quarter and then contract 0.3 percent next quarter, a sharp revision from the 0.3 percent expansion they had expected before for both the quarters in the previous poll.

In a worst case scenario, the economy was forecast to contract 1.0 percent next quarter and by 0.7 percent in 2020.

Forecasts were as low as -5.0 percent and -3.0 percent, respectively, with no economist expecting growth in either period in the worst case.