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Deutsche Bank forecasts 'severe recession' due to COVID-19

Mar '20
Pic: Shutterstock
Pic: Shutterstock
Deutsche Bank foresees a severe global recession occurring in the first half of this year, with aggregate demand plunging in China in the first quarter by about 32 per cent and in the Euro Area and the United States in the second quarter, by 24 per cent and 13 per cent respectively.

The anticipated quarterly declines in gross domestic product (GDP) growth substantially exceed anything previously recorded going back to at least World War II.

The bank’s team of economists led by Peter Hooper, global head of economic research, pointed out that the crisis has also engendered unprecedented policy responses.

The US Federal Reserve System (Fed) and the European Central Bank (ECB), already relatively low on ammunition, have gone pretty much all out in their responses, the bank said in a press release.

The fiscal response could turn out to be huge, with serious discussion in the US of stimulus packages amounting to 6 per cent of GDP on top of already significant automatic stabilisers. In Europe, the fiscal rules have been effectively suspended and leaders pledge to spend ‘whatever it takes’.

A report by the economists stressed that the degree of uncertainty surrounding these projections as the current events are unprecedented.

Deutsche Bank’s baseline forecast assumes that the severe containment measures being taken will succeed in flattening the epidemic curves by mid-year in the Euro Area and the United States, and that activity there will begin to bounce back in the third and fourth quarter, supported also by massive policy responses.

This baseline view of a V-shaped recovery is based importantly on clear signs that economic activity in China is quickly returning to normal even as the first quarter is drawing to a close.

The virus could prove more difficult to contain in the US and Euro Area than it was in China. Stress in financial markets could also trigger sharper and more protracted declines in activity.

Fibre2Fashion News Desk (DS)

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