Global economic recession will be deep, but won’t last for long

Dubai: While investors and market spectators brace for the deepest global recession since World War II, there is reason for hope as economists now see the economic impasse ending in record time as well.

The COVID-19 contagion and the subsequent stringent lockdown measures that followed have evidently thrown the world economy in turmoil. Even as countries reopen, economists have been warning how the globe is currently undergoing its deepest global recession in a couple of decades short of a century.

In the coming second quarter, global gross domestic product – the broadest measure of economic growth – has widely been expected to plunge, bogged down by the top economies.

May not be too bad 

However, the view now among economists is that growth may not stay constricted for as long as one previously thought and the predicted deep recession may be over much sooner than you think!

“The deepest global recession in 75 years will also likely be the shortest on record,” revealed Nariman Behravesh and Sara Johnson, global economists at IHS Markit.

“All signs point to the second-quarter real GDP plunge in the US and European economies being one for the records, with double-digit quarter-on-quarter declines in the United States, Eurozone, and United Kingdom,” IHS Markit, which publishes widely watched surveys of business and economic activity, noted in a report.

However, the economists said that while these downturns will still be the worst since the end of World War II, they anticipate that growth will return in the third quarter in the US and European economies.

Drop in global growth rates

For 2020 as whole, real GDP is projected to fall 8.1 per cent in the US, 8.7 per cent in the Eurozone, and 12.2 per cent in the UK, according to economic surveys conducted by IHS Markit.

The survey further indicated that Mainland China’s record first-quarter nosedive was followed by a second-quarter rebound and that will lead to an annual growth of 0.5 per cent.

“All this means that global real GDP is projected to decrease 6 per cent in 2020, more than three times the 1.7 per cent contraction in 2009 during the Global Financial Crisis,” the economists added in a collaborative note.

The figures come a few weeks after the World Bank estimated that GDP worldwide will contract 5.2 per cent in 2020. In comparison, the International Monetary Fund (IMF) estimated in April that the global economy would contract 3 per cent this year.

Shorter recession for developed world

“Ironically (and mercifully) the recessions triggered by the coronavirus disease (COVID-19) pandemic in the developed economies are likely to have been short,” the IHS Markit economists explained.

The recession was widely viewed to have lasted two months in the United States and Eurozone – March and April – and three months in the United Kingdom, which extended into the month of May as well.

For the US economy, this would be the shortest recession on record, the survey showed, with the prior record for the shortest recession being the six-month-long downturn in 1980.

Quick rebound

After unprecedented drops to record lows, economic data for all the key economies have bounced back sharply. However, with the exception of China, the indexes are still below 50, the demarcation line between contraction and expansion.

“Thus, while the worst is over, the recovery is likely to be hard slog—even after an anticipated short-term bounce,” the economists cautioned.

“The global index of manufacturing export orders remains deep in contraction territory, suggesting the external demand outlook of China and other Asian export powerhouses is highly challenging.

Massive drop in trade

IHS Markit predicts that global trade will contract at a double-digit rate in 2020.

“Even with the beginnings of a recovery in place, the fallout from this pandemic and the lockdowns can only be described as massive… With millions of businesses shuttered and tens of millions of workers unemployed, the economic and social costs continue to rise and will stay elevated for a long time.”

The economists suggested that this will require continued and additional support from central banks and governments and continued vigilance by health authorities vis-à-vis new waves of the COVID-19 virus. “Otherwise, this deep and brief downturn could turn into something far worse.”