(May 18): A recovery in global output to pre-pandemic levels is likely to take two to three years, observe IHS Markit economists Nariman Behravesh and Sara Johnson.
“The fastest we can expect output in key economies to return to pre-pandemic levels is early 2022. The exception is China where the infections occurred earlier and recovery is now underway. In many economies, the recovery could be even more prolonged,” they add.
Their prediction comes as global economies have been crumbling from the lockdowns, movement control restrictions and disrupted global supply chains that have resulted from the health measures aimed at combatting the spread of the coronavirus.
With this in mind, Behravesh and Johnson, are looking at a 5.5% fall in real global GDP this year. Such a contraction will be more than thrice that during the 2009 Global Financial Crisis (GFC), they add.
On a country basis, they expect the US economy to plummet by as much as 36.5% in 2Q20 ending in June, as parts of its economy has been locked down to curb the spread of the novel coronavirus.
This is a conservative estimate given the US’ Federal Reserve of Atlanta’s prediction of a 42.8% decline in 2Q20 as the number of Americans filing for unemployment in the last eight weeks hit 36.5 million.
The nation is also said to face a decline from a 16.4% plunge in its retail sales in April – which marks its worst drop in consumer spending.
Cracks of a deteriorating economy had already surfaced in 1Q20 when it recorded a 4.8% contraction - its reversal into the red for the first time since the -8.4% logged during the global financial crisis in 4Q2008.
Meanwhile, China, where the virus strain allegedly originated from, reported a 6.8% y-o-y contraction in 1Q20 GDP, making this its first quarter of decline since 1992.
A Reuters poll of private-sector economists shows expectations of this decline to extend into 2Q20, with a 1.3% economic contraction.
Shape of recovery
Amid the uncertainty of the path of the virus, Behravesh and Johnson acknowledge that it is difficult to predict the depth of the recession that is panning out.
However, they expect the world to “inch toward normalcy over the coming year” based on assumptions that new global infections will peak by late summer, a vaccine will become available in late 2021 or early 2022 and lockdowns will be eased throughout summer.
Even so, they say a recovery will not be immediate.
“A tidal wave of bankruptcies among small and large industries will make restarting the manufacturing sector more challenging than in typical recoveries. Moreover, the damage to the finances of households and businesses will substantially delay any return to old spending levels”.
Behravesh and Johnson add that a fear of travel may also deter a revival of the travel and leisure industries.
Aside from these, they caution of a second wave of infections seen when countries relax movement restrictions.
“Crucially, any resurgence in the number of infections will only worsen these trends. The recent flare up of cases and re-imposition of restrictions in South Korea and parts of China are worrisome.”
