Global GDP set to fall further
With the COVID-19 pandemic continuing to damage economies across the world, and with few clear signs of an end to the crisis, we have lowered our outlook for global GDP.
At the beginning of April, we foresaw a 3.3 per cent contraction for 2020 – a sharper fall than the worst of the 2008-2009 financial crisis. However, events have moved on over the last six weeks. We now expect global GDP to drop by 4.8 per cent.
This change is driven by a number of factors. First, many countries have either tightened lockdown restrictions or extended their duration, particularly in the emerging world, including in Latin America and Russia, and a number of countries in Asia such as Indonesia which had previously avoided formal suppression measures. Using our new output model for emerging economies, we can consider what impact these lockdowns are likely to have on domestic demand.
Second, we now have first quarter GDP data for the three largest economies in the world – US, China and the eurozone – and several others. That means we have a better idea of what the economic damage is from at least the initial stages of the lockdown. This is a useful indication of what may be happening elsewhere.
Q1 was bad, Q2 will be worst for most
Third, anticipated timelines for the full re-opening of the economy have lengthened. Some economies are now seeing their lockdowns and social distancing measures being eased, most notably China and Korea. An increasing number of countries in Europe have started a gradual opening up too, as have New Zealand and Australia. However, varying experiences illustrate the difficulty in trying to revive activity back towards previous norms and have led us to expect this will take longer.
Severe external demand shocks were already apparent in the April trade statistics for the likes of Korea and we are tracking daily and weekly data to gauge the pace of return to normality, as well as signs of more lasting behavioural shifts. So far they are consistent with a more gradual and staggered recovery in economic activity than previously anticipated. Therefore, as well as lowering our expectations for growth in the second quarter, which we still think will be the period of deepest contraction for most countries, we have also scaled back the degree of bounce-back anticipated for the third quarter in some.
Fourth, for oil producers, particularly in the Middle East, the oil price is still very low. Our real GDP forecasts for the oil-producing nations have been cut materially, primarily to reflect the oil production cuts agreed at the OPEC+ summit in April. This means net exports are no longer set to mask the sharp downturns in domestic demand that we had already factored into our previous forecasts.
Taking all of this together, the bigger downgrade this time is in our forecast for the emerging world where we now expect a fall in GDP of 1.7 per cent, down from our previous forecast of 0.5 per cent growth, with sizeable cuts across all regions. The damage looks particularly bad in Latin America, where we now see GDP in Mexico falling by 9 per cent this year and in Brazil by 7.3 per cent. High uncertainty about the impact and duration of the COVID-19 health crisis in both countries can be expected to have a deeper and more lasting effect on investment and consumption.
Our forecast for the developed world has fallen from -5.9 per cent to -7.1 per cent, with the biggest downgrades coming through in Europe, notably France, and in Canada, where the outlook has deteriorated sharply both from COVID-19 effects and lower oil prices.
Key HSBC GDP forecasts
Source HSBC Economics, Bloomberg
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