Economists downgrade global economic outlook

Analysts now forecast the negative economic impact of the COVID-19 pandemic to be even more severe than expected just seven days ago, as many countries have recently adopted sweeping containment measures. According to a 23–24 March survey of 71 economists conducted by FocusEconomics, over half (59%) see a hit to 2020 global growth of greater than two percentage points, with a quarter seeing a reduction of greater than three percentage points. For the first time, a majority of panelists (56%) now see the negative impact of COVID-19 dragging into 2021, with a global recession in the next 12 months judged to be all but inevitable.

The recession is expected to last for two quarters, although a significantly larger proportion of panelists (62%) now predict a U-shaped recovery, implying that economic activity will not suddenly rebound (referred to as a V-shaped recovery), but will instead stay subdued for longer. This change to the outlook is likely due to the potential impact of widespread economic shutdowns on employment and financial stability.

Most panelists (64%) see current fiscal and monetary stimulus as insufficient to avoid lasting economic damage, as stimulus is unlikely to completely offset the collapse in activity from shutdowns. Moreover, even though a period of abovepotential growth should ensue once shutdowns are lifted, not all output lost is likely to be recouped.

Panelists were broadly split on whether the downturn would morph into a broader financial crisis (46%). Some judged that the unprecedented nature of shutdowns around the world, combined with high global debt levels, provided a recipe for a financial crisis, while others predicted that proactive fiscal and monetary stimulus would avoid such an occurrence. The effectiveness of stimulus and the duration of shutdowns and the pandemic will be key factors to watch.

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