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Coronavirus pushing global growth below zero

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Forecasts have placed global GDP growth as low as -10 per cent for the first half, while the IMF has indicated it is concerned for the year ahead.

Global asset manager PGIM has predicted the global economy will contract sharply during the first and second quarters, with an immense drop in Chinese activity as the virus and resulting lockdown have weighed on its performance. 

PGIM chief economist and head of macroeconomic research at PGIM fixed income Nathan Sheets has said China is likely to see some recovery as workers get back to their posts in the second quarter, but growth elsewhere will still feel the heaviest blows of the virus. 


He believes the US is poised to cop a record double-digit drop in Q2 GDP, with Europe to see a similar consequence. The outlook ultimately depends on how quickly the virus is contained – the longer it persists, the more severe the downturn.

“We see global growth during the first half as likely to contract more sharply than during the global financial crisis, with numbers in the range of -5 per cent to -10 per cent quite plausible,” Mr Sheets said.

“Our forecast pencils in a recovery at some point in the second half of the year, as pent-up demand and monetary and fiscal stimulus fuel a rebound. But the key question is how quickly and how strongly that recovery takes hold. 

“If the recovery comes relatively quickly and the drop during the first half of the year is closer to -5 per cent, the global economy has a chance to finish flat for the year as whole. However if the first half is near -10 per cent and the recovery correspondingly delayed, outcomes in the -2 per cent to -3 per cent range [seem] reasonable.”

Meanwhile Moody’s has lowered its forecast for Australian growth to 0 per cent. 

The supply and demand sides of the global economy have both been hit as quarantines force firms to suspend their operations and restrict consumers to their homes. All the while, economic uncertainty has spiked. 

“It’s impossible to project with any confidence the severity or duration of the current episode,” Mr Sheets said.

“This has stoked public anxieties, which in turn has further restrained spending and production, and weighed on the performance of financial markets. The monetary and fiscal stimulus that is being put in place will buffer, but cannot reverse, these effects.

“Given the intensity of the challenges, no country or region will be immune. Although many of the emerging market economies have not yet felt the virus’ wrath directly, they are hit by falling global demand and the retrenchment in investor risk appetite. In addition, a number of the oil-exporting countries are feeling the sharp decline in oil prices.”

In contrast, PGIM started the year moderately bullish, with its forecast for global growth at a little more than 3 per cent. 

Last week the IMF declared the world has entered recession after reassessing growth for 2020 and 2021.

Since then, it has extended its bilateral borrowing arrangements through to 2023, helping maintain its lending capacity of US$1 trillion. 

Speaking at an extraordinary conference of G20 finance ministers and central bank governors on Tuesday, IMF managing director Kristalina Georgieva said her body welcomes the actions countries have taken to stabilise financial markets. 

“Nonetheless we remain very concerned about the negative outlook for global growth in 2020 and in particular about the strain a downturn would have on emerging markets and low-income countries,” Ms Georgieva said. 

“Our forecast of a recovery next year hinges on how we manage to contain the virus and reduce the level of uncertainty.

“Thus, we support an ambitious G20 action plan to strengthen the capacity of health systems to cope with the epidemic; to stabilise the world economy through timely, targeted and coordinated measures; and to pave the way towards recovery.”

Looking ahead, PGIM has pointed to China as a test case for how long it takes to get workers back on the job and for production to resume. 

“Roughly five weeks after the end of national quarantine, reports indicate that China is producing at 80-85 per cent of its national economic capacity,” Mr Sheets said.

“This suggests even after the virus passes, it’s likely to take at least a couple of months to get the economy fully functioning again.”

Coronavirus pushing global growth below zero

Forecasts have placed global GDP growth as low as -10 per cent for the first half, while the IMF has indicated it is concerned for the year ahead.

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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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