menu
 
Economics Fixed Income Commentary

Global Macro Outlook - August 2020

10 August 2020
2 min read

What You Need to Know

Our forecast of negative global economic growth for 2020 is little changed, but we expect some expansion next year. We don’t believe the recovery will be a traditional “V-shape,” as output levels for many reasons are unlikely to hit pre-crisis levels until well into 2022.

Download

Key Forecast Trends

  • The global economy received an unprecedented hit in the second quarter, with the US contracting by 9.5% and the Euro area by 12.1%.
  • The only major economy to advance was China's, COVID-19's “first in, first out.” Output there jumped 11.5% after a 10.0% drop in the first quarter.
  • Similar rebounds are likely in other countries during the third quarter. But we caution against assuming this is a traditional “V-shaped” recovery.
  • That's because a key component of any recovery is the level of activity. And even with a strong rebound in the third quarter, output in many economies is unlikely to return to pre-crisis levels until well into 2022.
  • This shouldn't be a surprise. Measures to contain COVID-19 have created enormous dislocations, further virus outbreaks look inevitable and other threats loom—such as the deteriorating relationship between China and the West.
  • The need for sustained fiscal stimulus remains compelling. The task for monetary policy is unchanged: keep bond yields and government funding costs low.
  • The euro has risen in recent weeks and we expect this trend to continue. Our target range is 1.25–1.35 vs. the US dollar. This is not so much a weaker US dollar story, but recognition of the euro area's much-improved governance framework.
  • The euro has traded in a weak range against the US dollar over the past five years. We think its recent rise is the beginning of a shift to a stronger regime.
  • Part of this reflects Europe's superior handling of the COVID-19 crisis, while some is due to monetary-policy convergence.
  • But the driving force is the recent improvement in euro-area governance, which has reduced the near-term tail risks of holding euros at a time when the outlook for US governance is uncertain.

Outlook

  • Our latest forecast for 2020 global economic growth is little changed at –4.5%. This masks an upward revision to euro-area growth (–7.5% from –10.0%), where second-quarter GDP was better than expected, and a downward revision to the US (–5.4% from –4.3%), where second-quarter GDP was slightly disappointing. Elsewhere, our forecasts are little changed, with China (1.1%) the only major economy likely to register positive growth this year.
  • We expect the global economy to expand by nearly 5% next year. While this looks like a “V-shaped” recovery, the level of output is likely to remain depressed. At the end of 2021, we expect output levels for the advanced economies to still be 2% below those at year-end 2019 and roughly 6% below an extrapolation of the pre-crisis trend.
  • The global economy's growth prospects will depend critically on the virus's future path, but ongoing policy support is also essential. There is little that monetary policy can do to directly influence the future path of output. But it can play an important supporting role by suppressing bond yields, keeping debt-servicing costs low and providing fiscal space for governments to support their economies. Interest rates are unlikely to rise much—if at all—in coming quarters.

Past performance, historical and current analyses, and expectations do not guarantee future results. There can be no assurance that any investment objectives will be achieved. The information contained here reflects the views of AllianceBernstein L.P. or its affiliates and sources it believes are reliable as of the date of this publication. AllianceBernstein L.P. makes no representations or warranties concerning the accuracy of any data. There is no guarantee that any projection, forecast or opinion in this material will be realized. Past performance does not guarantee future results. The views expressed here may change at any time after the date of this publication. This document is for informational purposes only and does not constitute investment advice. AllianceBernstein L.P. does not provide tax, legal or accounting advice. It does not take an investor’s personal investment objectives or financial situation into account; investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service sponsored by AB or its affiliates.

The views expressed herein do not constitute research, investment advice, or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.

This is a marketing communication. This information is provided by AllianceBernstein (Luxembourg) S.à r.l. Société à responsabilité limitée, R.C.S. Luxembourg B 34 305, 2-4, rue Eugène Ruppert, L-2453 Luxembourg. Authorised in Luxembourg and regulated by the Commission de Surveillance du Secteur Financier (CSSF). It is provided for informational purposes only and does not constitute investment advice or an invitation to purchase any security or other investment. The views and opinions expressed are based on our internal forecasts and should not be relied upon as an indication of future market performance. The value of investments in any of the Funds can go down as well as up and investors may not get back the full amount invested. Past performance does not guarantee future results. 

This information is directed at Professional Clients only and is not intended for public use.

© AllianceBernstein L.P.