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Economics Commentary

Global Macro Outlook - June 2020

09 June 2020
1 min read

What You Need to Know

The global economy faces a massive near-term hit from coronavirus-related lockdowns and social distancing, spurring unprecedented policy measures. They won’t prevent the fearful near-term hit, but they can help lay the foundations for recovery—once the public-health crisis has passed.

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Key Forecast Trends

  • With leading indicators bouncing off record lows and governments easing lockdowns, attention is turning to the shape of the recovery and post crisis landscape.
  • Key factors for the pace and durability of recovery will be the effectiveness of policy support for households and firms as well as the extent to which the virus can be contained as restrictions are lifted. We’re generally optimistic on both.
  • But even in a best-case scenario, recovery is likely to be slow and uneven, with some of the jobs and activity displaced in recent weeks likely to be permanently lost. That’s why timely post-crisis fiscal stimulus is vital.
  • Fiscal spending will add to the rising strain on public sector balance sheets, putting even more pressure on central banks to keep interest rates close to or below zero—which we expect for some time to come. This remains our highest-conviction view.
  • Rising debt is not the only way in which COVID-19 will leave its mark on the global economy. Behavioral change is inevitable. But the crisis is also likely to give added impetus to key secular trends: populism, deglobalization and geopolitical conflict.
  • Renewed tension between China and the US and growing social unrest are just the first signs of this. Not only do these represent new threats to the cyclical outlook, they’re also a reminder that the secular outlook faced powerful headwinds even before COVID-19 struck.

Outlook

  • We have lowered our 2020 global growth forecast further to –4.6% from –0.7%. Risks to this forecast look more evenly balanced than a month ago when they were heavily skewed to the downside.
  • The US and euro-area economies are expected to contract by 5.5% and 10.0%, respectively, this year, while China is expected to expand by 1.1%. The big difference between the forecasts is largely explained by the relative severity of the economic lockdowns needed to contain the spread of the virus—but also by fiscal stimulus.
  • We see global growth rebounding to 5.1 % in 2021. This will depend crucially on the effectiveness of policies to dampen the economic impact of the lockdowns and the extent to which the virus can be contained as those lockdowns are lifted.
  • Central banks have moved quickly to relaunch quantitative easing (QE) programs to allow governments to support their economies without putting upward pressure on bond yields. We expect yields to remain close to current record lows.

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