The V-shaped global economic recovery is happening earlier than expected, according to Morgan Stanley Research’s team of economists Chetan Ahya, Derrick Kam, Nora Wassermann, Julian Richers, and Frank Zhao.
In a report dated September 7, the team estimates that the global and developed markets (DM) economies may return to pre-Covid-19 levels a quarter ahead of its original forecast, by as early as 4Q20 and 3Q21 respectively.
“The US will achieve pre-recession output levels in six quarters (i.e., by 2Q21) versus the 10 quarters it took during the global financial crisis (in our earlier forecasts the US economy reached pre-Covid-19 levels by 4Q21),” it says.
The team attributes the upside surprise to large economies lifting economic activity to “much higher levels” despite the ongoing spread, the progress in the fight against Covid-19 by the medical community, as well as the treatments and vaccines that are on track to being available “in the next couple of months”.
“The quick recovery since May means that the global economy will reflate faster than we initially expected. As the forces that drive inflation higher continue to align, we now see a stronger case for our call that inflation will re-emerge in DMs, particularly the US, in a different manner from the last three cycles”, the team adds.
Fitch Ratings in its latest Global Economic Outlook (GEO) says it expects global gross domestic product (GDP) to fall by 4.4% by 2020, compared to the 4.6% decline it predicted in the June GEO.
While the recovery in economic activity following the “severe recession” in March and April was quicker than anticipated, Fitch economists expect the pace of expansion to moderate soon.
"China has already regained its pre-virus level of GDP and retail sales in the US, France and the UK now exceed February levels, but we doubt this will become the much-lauded 'V'-shaped recovery,” says Fitch Ratings’ chief economist, Brian Coulton.
“Unemployment shocks lie ahead in Europe, firms are cutting capex, and social distancing continues to directly constrain private-sector spending", Coulton adds.
Compared to its GEO in June, Fitch now expects the US economy to contract by 4.6%, compared to 5.6%. Its China growth forecast now stands at +2.7% compared to the +1.2% in June.
In the rest of the world, Fitch has lowered its 2020 GDP forecasts for Europe, the UK, and for emerging markets (EM) excluding China to -9.0% (from -8.0%), -11.5% (from -9.0%), and -5.7% (from -4.7%) respectively.
In EM, the drop is mainly due to a cut in India’s forecast for FY21 ending March to -10.5% from -5.0%.
Despite the short coronavirus-related recession, Coulton does not foresee the positive growth to continue, amid fading optimism on the reopening of economies, labour market dislocations, and retrenchments.
“And with the virus outbreak not yet contained, social distancing behaviour and ongoing restrictions will drag on activity," he says.
“We still see the recovery path being decidedly 'swoosh'-shaped. Off the back of a two-month recession we think it will take 18 months from the low-point in April for the US to get back to 4Q19 GDP and 30 months in the eurozone", Coulton adds.
