The Strategist

Fitch analysts update coronavirus recession forecast

04/23/2020 - 03:03

This year, the global economy will face the strongest recession in the post-war period. The figure will amount to 3.9%, follows from the updated macro forecast of the Fitch rating agency. The most visible drop will be noted in the euro area economies (minus 7%), the US economy will shrink by 5.6%, and in China, the growth will not reach 1%.

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Global GDP will decline by 3.9% this year, and will grow by 5% next year, analysts at Fitch, the international rating agency, forecast. It is assumed that in developed countries the decline will be more pronounced - by 5.9% in 2020 (followed by a growth of 4.1% in 2021), developing economies will experience a decline of 0.5% this year but an increase of 6.4% in 2021. The rating was updated mainly due to the extension of quarantine measures, the agency says. On average, an additional month of restrictions costs 2 percentage points of growth.

In the euro zone, the recession will be 7% this year, and the economy will grow only by 4.3% in the next year. The most visible recession will occur in Italy and Spain - minus 8% and 7.5%, respectively. In the United States and Great Britain, where tough measures were introduced later, the main decline will occur in the second quarter, when their GDPs will fall by more than 10%. In general, the agency expects a fall by 5.6% in the USA in 2020, and growth by 4.3% in the next year (minus 3.3% in early April). In the UK, it will be minus 6.3% in the current year and 3.9% - in the next. In Japan, the decline will be 5% in 2020, and an increase of 3.2% is expected for the next year.

Among the developing countries, the downward revision affected primarily Mexico (minus 6.6%), Brazil (minus 4%), South Africa (minus 5.5%) and Turkey (minus 2%). In China, one of the first emerging from the crisis, and in India, growth will not exceed 1%. The forecast for China is reduced to 0.7% with a rebound in 2020 of 7.9%. In the first quarter, we recall, the decline was 9, 8% quarter-on-quarter, 6.8% year-on-year; in India, the forecast is 0.8% and 6.7%, respectively). A decline is now also expected in Russia - by 3.3% this year, with weaker growth in the next - by 2.5%. 

Meanwhile, Italian Prime Minister Giuseppe Conte said recently that within a week he will present a plan to ease the bans and restrictions imposed to combat the epidemic. He noted that the implementation of the plan will begin on May 4. At the same time, the country's authorities are hoping for additional funding at the end of the EU summit. An emergency package in the amount of € 540 billion has been put on the agenda to overcome the consequences of quarantine in Europe. Greece is gradually preparing to leave the national quarantine, and in Denmark residents of the country will be allowed to gather in groups of up to 500 people from 10 May. 

ING Bank notes that, judging by the attendance of offices and stores, the most stringent quarantine was applied in Italy, Spain and France, while in the Netherlands, Finland and Germany the restrictions were de facto milder than in other EU countries. The first country to announce the gradual lifting of restrictions was Austria, where small businesses are already allowed to work, and schools and restaurants are scheduled to open in May. In Germany, the possibility of a gradual lifting of restrictions will be discussed today, but small businesses are allowed to operate from April 20. In France, by contrast, quarantine measures were extended until May 11. Such differences will ultimately result in varying degrees of economic downturn, the bank notes.