COVID-19 crisis crushing global GDP growth: Fitch Ratings

21 Mar '20

3 min read

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The COVID-19 crisis is crushing global gross domestic product (GDP) growth, Fitch Ratings said in its latest quarterly Global Economic Outlook. "The level of world GDP is falling. For all intents and purposes we are in global recession territory," said Brian Coulton, chief economist at the company, which nearly halved its baseline global growth forecast for 2020 to just 1.3 per cent from 2.5 per cent in the December 2019 outlook.

The revision leaves the 2020 global GDP $850 billion lower than in the previous forecast. But we could very easily see an outright decline in global GDP this year if more pervasive lockdown measures have to be rolled out across all the G7 economies.

Even though Fitch expects a recovery in China from the second quarter, growth there is expected to fall just 3.7 per cent for the year as a whole, down from 6.1 per cent in 2019. We forecast Italian GDP to fall by 2 per cent this year and Spanish GDP by almost 1 percent.

Emergency macro policy responses are purely about damage limitation at this stage but should help secure a 'V-shaped' recovery in this year’s second half, though this assumes that the health crisis eases.

The shock to the Chinese economy has been very severe. GDP is likely to fall by over 5 per cent (not annualised) in the first quarter and to be down by 1 per cent year on year. Falling GDP in China is virtually unprecedented and, in the near term at least, these numbers look worse than most previous hypothetical 'hard-landing' scenarios, Fitch said.

The good news is that the daily number of new COVID-19 cases in China has fallen very sharply, which should pave the way for a marked economic recovery in 2Q20—high-frequency indicators already point to this starting in March.

The delayed impact of supply-chain disruptions and lower Chinese demand on the rest of the world will continue to be felt profoundly for some time, particularly in the rest of Asia and the Eurozone.

Moreover, the rapid spread of the virus outside China has prompted sharp declines in travel and tourism, and the cancellation of business and leisure events worldwide as 'social distancing' takes hold. And some other large advanced countries—most notably Italy, Spain and France—have engaged in aggressive official lockdown responses similar to those seen in China.

These countries are likely to see very sizeable outright declines in GDP in the coming months, Fitch said in its outlook.

The interruptions to economic activity seen in China, and now in Italy, are on a scale and speed rarely seen other than during periods of military conflict, natural disasters or financial crises. While there is huge uncertainty, quarterly declines in GDP of 3 per cent to 5 per cent (not annualised) in a full lockdown scenario look feasible.

Fibre2Fashion News Desk (DS)

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