S&P Global Ratings has predicted that the global growth is set to be pushed toward zero this year because of the global economic turbulence caused by the coronavirus pandemic as well as the nationally enforced lockdowns across major markets.
“In response to the ongoing extraordinary impact of the coronavirus pandemic on economic activity and financial markets, we have marked down global growth to just 0.4% this year, with a rebound to 4.9% in 2021,” S&P’s global chief economist Paul Gruenwald wrote in a research note published Tuesday. “The decline in activity will be very steep.”
It was way back in the economic crash of 1982 that the global growth was last calculated at 0.43 per cent which was at that time the worst global economic crisis since the Great Depression of 1929-1933. The forecast of growth of 0.4 per cent puts 2020 in the same bracket.
S&P’s forecast for growth in 2020 was 3.3 per cent before the coronavirus pandemic spread across the world.
However there were already indications available in numbers coming out of major economies rattled by the virus pandemic. For example, a staggering 3.28 million Americans filed jobless claims in the third week of March which was four times greater than the previous record reached in 1982.
Non-essential businesses have been shut down while millions of workers forced to work from home because of the pandemic related lockdowns. Billions all across that world have also been forced to stay back at home to self-isolate in an effort to slow down the spread of the coronavirus pandemic. More than 38,700 have been killed globally by the virus while more than 800,000 have been infected.
There was a 45 per cent year on year drop in the fixed asset investment in China – the second-largest economy of the world. In addition, S&P reported, there had been a 14 per cent and 21 per cent drop in industrial production and retail sales respectively.
There has been a 30 per cent drop in the S&P 500 index in a record time of just 22 trading days and the VIX Volatility Index, also known as Wall Street’s “fear gauge,” touched its highest point since the 2008 financial crisis. There has also been a flight of capital from emerging markets at a rate that is faster than any previous global crisis.
In the U.S., “Growth will likely rebound to 3.2% in 2021, implying a loss of GDP of $360 billion relative to our December 2019 baseline,” Gruenwald wrote.
“Labor market outcomes are deteriorating sharply and the unemployment rate will likely top 10% in the second quarter (with a monthly peak above 13% in May),” he added. That meant that the number of unemployment will be greater than the numbers in the wake of the Global Financial Crisis – which saw a peak of 10.2 per cent in unemployment in October 2009.
The ratings firm said that its estimates for recovery were based on some government estimates that the pandemic will peak halfway through the year while also emphasizing on the unpredictable nature of the pandemic and the disease.
“The risks to our baseline forecast remain firmly on the downside since the translation from health outcomes to economic variables remains highly uncertain,” the report said.
(Adapted from CNBC.com)