SINGAPORE (June 17): Instead of a V-shaped economic recovery as previously predicted, Schroders’ chief economist and strategist Keith Wade is downgrading his forecast for global growth to reflect the dull first quarter in 2020.
As a result, Wade foresees a U-shaped recovery instead, on the back of gradual recovery amidst lifting lockdowns.
“Overall, we see global activity falling 5.4% this year, a downgrade from our previous forecast of -2.9%. We expect the recovery to be gradual as households and firms remain cautious,” he writes in a June 2020 report.
However, growth around the world should improve some 5.3% in 2021 on the back of loose fiscal and monetary policies, as well as hopes of a vaccine being successfully developed by the middle of next year.
On the whole, Schroders has downgraded its global inflation forecast to 1.5% in 2020 from 1.9% previously, and 1.8% from its previous 2.1% in 2021.
Globally, Schroders foresees activity in 2Q20 being likely to be as bad, if not more severe than in the first quarter due to the extended lockdowns through April and into May. This is despite data such as stabilised industrial metals prices, and a pickup in activity in the workplace, seeming to suggest the worst is over.
On easing lockdowns, Schroders predicts a weaker rebound, and a lesser-than-anticipated bounce in activity in Q3. This is due to four major factors, including a potential second wave of infections, impeding the lifting of lockdowns; caution in spending habits, especially across the travel, hospitality, and leisure sectors; less support for businesses; and a period of de-leveraging from firms in 2021.
Other scenarios that are likely to happen, says Schroders’ Wade, is a W-shaped recovery on the return of the virus, and a second wave of lockdowns that is likely to cause a double-dip recession.
Globally, Schroders has slashed the US’s growth forecast to -8.2% for 2020, from -3.9%. Growth in the Eurozone has been reduced to -6.1%, from -5.7%. The UK is expected to see a negative growth forecast of 8.5% from 7.2%. In Japan, the economy is predicted to contract by 5.4%. In the emerging markets, Schroders has downgraded its outlook on China to 2.2% from 5% previously.
