IHS Markit estimates that global growth in 2020 will be 1.7 percent, compared with 2.5 percent in our February baseline, and 2.7 percent in 2021 compared with the earlier forecast of 2.8 percent - Photo: Special

JAKARTA (TheInsiderStories) – IHS Markit estimates that global growth in 2020 will be 1.7 percent, compared with 2.5 percent in our February baseline, and 2.7 percent in 2021 compared with the earlier forecast of 2.8 percent.

The United States (US) economy will be hurt by the effects of the virus, we believe that the momentum of the economy is strong enough to avoid a recession. On a calendar-year basis, we are now predicting 1.8 percent growth in both 2020 and 2021, compared with the previous forecast of 2.1 percent in 2020 and 2.0 percent in 2021.

Europe is likely to be harder hit, with Germany and Italy in or near recession before the epidemic. This could well drag the rest of the eurozone into recession. For 2020, the IHS Markit eurozone forecast has been cut from 0.9 percent to 0.0 percent, while the 2021 growth rate has been reduced from 1.1 percent to 0.9 percent.

The epidemic could not have come at a worse time for Japan, which suffered a fourth quarter contraction of 6.3 percent, annualized. For the moment, we are assuming that that the summer Olympics in Tokyo will proceed as planned. Even with that, real GDP will shrink by 0.3 percent in 2020, compared with our February forecast of positive 0.2 percent growth. For 2021 we expect growth of 0.9 percent, compared with last month’ estimate of 1.0 percent.

In China, the rapid spread of the virus over the past two months and the aggressive quarantine policies of the central government mean that there was likely a sharp contraction in real GDP in the first quarter of this year, which will be followed by a modest recovery in the second. With this, we now predict growth of only 4.3 percent this year, versus with 5.4 percent a month ago, and 6.4 percent in 2021, compared with the prior forecast of 6.0 percent.

The impact on the rest of the emerging world will vary with the incidence of the epidemic, Iran will get hit very hard, and the transmission mechanism through lower global growth and lower commodity prices. Few, if any, countries will be immune.

Chart by IHS Markit

Industry impacts

In 2020, the motor vehicles and parts industry will be hit most severely, down 4.4 percent globally, followed by computer & electronics (-1.9 percent globally). and restaurants (-1.3 percent globally).  The light vehicles sales market will be down 5.1 percent globally (number of units).

The motor vehicles and parts industry will contract in most regions in 2020, with the biggest declines seen in Japan, China, South Korea and the United States. Transportation services will contract in Italy (-0.7 percent) and Japan (-0.4 percent) in 2020.

The restaurant and recreation sector will also fall in 2020, down 1.5 percent in Japan, 1.2 percent in South Korea and 2.4 percent in Italy, respectively. By 2021, all industry segments will see a return to growth. Regionally, Japan, the Euro area and Latin America show weakest growth across a range of industries

Global Economy Contracted at the Steepest Rate Since 2008

The coronavirus disrupted supply chains and hit sectors such as travel, tourism and transport. The downturn was led by China, with deep downturns also seen in Hong Kong SAR, Japan and the US.

The percentage of respondents who cited COVID-19 as a negative factor was most highly concentrated in the hard-hit Asia Pacific region. By comparison, a relatively lower percentage of Britain and US firms referenced the virus in negative sentiment comments in February, but those numbers are expected to rise in the March surveys.

February data signaled widespread disruption across sectors stemming from the coronavirus outbreak. Eight sectors posted the fastest falls in output on record during the month, since the global sector data were first compiled in October 2009. In contrast, the pharmaceuticals and biotechnology sector saw growth in activity in February, posting the fastest expansion since December 2018.

ECB Additional Stimulus On the Way

IHS Markit expects the European Central Bank (ECB) to announce yet another package of easing measures on 12 March. This is likely to include an enhancement of liquidity provision, a 10-bp deposit facility rate cut, and a modest increase in the monthly pace of net asset purchases (probably EUR10–20 billion).

We see a risk, however, that the ECB might fall short (temporarily), disappointing market expectations. Either way, even a wide-ranging package of measures will make little difference to the near-term fall-out on the economy from the spread of the COVID-19 virus. At best, it will mitigate some of the financial market spillover effects.

Italy, which is effectively already in recession, will bear the brunt of the damage in the near-term. But the multiple transmission channels of this shock suggest the eurozone overall is likely to follow into recession in coming quarters.

Edited by Staff Editor, Email: theinsiderstories@gmail.com