Deep global recession and protracted recovery

There will be global recession in 2020. The containment measures to restrict and slow the spread of the Covid-19 virus have shut down large parts of the economy. We see only partial and protracted recovery in the second half and forecast a 3.8% contraction in global gross domestic product (GDP) in the full year 2020, far more than the 1.8% slump seen at the time of the global financial crisis (GFC).

We believe the immediate output loss in the US and the euro area will be twice as large as during the GFC, and that it will happen more than twice as fast. We expect the recovery in 2021 to be stronger in the US than in the euro area, given its greater economic resilience even before the onset of the pandemic. All told, the risks remain to the downside. For instance, financial conditions have tightened significantly and, if the financial market reaction worsens further and feeds back into the real economy, there could be a full-blown credit crisis. Another risk stems from supply-chain disruptions, which could impact the many economies closely integrated into the global supply chain network.

China's economy has been particularly hard hit, but will rebound strongly. The first quarter hit was strong and with a slow return to work and weaker global backdrop, we have revised our 2020 China growth forecast down to 3.2%. Longer-term, we remain positive on China and forecast a rebound to 7.0% growth in 2021.

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