Even If The World Economy Avoids Technical Recession, Growth Will Fall To 1% In 2020

de globalization

It will take until the end of 2022 for global GDP to recover to pre-Coronavirus levels. The economic situation caused by this global coronavirus outbreak changes every day. However, the Research Institute of Aberdeen Standard Investments believes the world economy will avoid the end-of-cycle recession, even though the global shock will be significant.

This is the firm’s main conclusion for its baseline scenario. It has built several scenarios by establishing a series of key events, in an attempt to glimpse what assumptions are more likely to occur. That said, the depth, breadth and duration of viral infection and the policy responses make it especially difficult to estimate the coronavirus’ economic impact .

The Research Institute of Aberdeen Standard Investments has used broad-based growth estimates, incorporating the complex interactions between household and business behaviour and government responses (fiscal and monetary policies).

Its baseline scenario contemplates that the coronavirus would not be easily contained and the global economy would experience a “U-shaped” recovery. This means the virus would spread widely globally, although the world economy would avoid technical recession; however, the expansion would fall to 1% by 2020. This would mean that some areas would go into recession, including the Eurozone.

However, the Research Institute believes that a coordinated response by central banks and an aggressive fiscal reaction by states would help to restore growth in the fourth quarter of 2020. It would be necessary to wait until the end of 2022 for global GDP to reach pre-coronavirus levels.
As for the effect on the markets and how it will influence each asset, this analysis highlights that it is difficult to calculate. That said, it does expect substantial volatility in the coming weeks and months before the crisis is resolved. The degree of volatility will naturally depend on the spread of the virus, monetary and fiscal policies and media attention.

The Institute does note, however, that “negative feedback loops from financial market channels (FX, credit and liquidity) amplify the initial shock, but then recede.”

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.