Key Forecast Trends

• Early indications confirm that the hit to the global economy from measures to contain the coronavirus is likely to be unprecedented. We have lowered our global growth forecast to –4.6%, roughly twice as big as the decline seen in 2009.
• Next year, we expect the global economy to rebound by 5.1%. That looks very much like a good, old-fashioned V-shaped recovery. But looks can be deceiving, and next year’s rebound masks a permanent hit to output of roughly five percentage points.
• Moreover, even this estimate depends on the effectiveness of policies to support vulnerable household and firms—and the extent to which the virus can be contained as lockdowns are lifted.
• A key risk to our forecast is a second wave and another lockdown. We’re hopeful that this can be avoided—partly because we expect current lockdowns to be lifted only very gradually in most countries. But risks remain, and a second lockdown would lead the global economy down a materially worse path.
• The economic cost of the crisis won’t be measured in just output and jobs. It will also place a huge strain on public-sector balance sheets: the government debt/GDP ratio for developed economies is likely to rise by roughly 20 percentage points this year.
• That’s where central banks come in. If bond yields rise, many governments won’t be able to provide the financial support their economies need. So central banks won’t allow this to happen, and will keep bond yields pinned close to, or below, zero.

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.