COVID-19: Fitch sees global economy shrinking 3.9% in 2020

The sharp downward revision is driven by a massive decline in Asian economies, led by China and India which are slated to post sub-1 per cent growth this year.

Several major economies have extended lockdowns of eight-nine weeks. This contrasts to the previous assumption of around five weeks. An extra month of lockdown will reduce the annual flow of income by around 200 basis points, Fitch said.

"The world GDP is now expected to fall by 3.9 percent in 2020, a recession of unprecedented depth in the post-war period," Fitch Chief Economist Brian Coulton said in a note.

"This is twice as large as the decline anticipated in our early April forecast and would be twice as severe as the 2009 recession," he added.

The report also sharply cut the forecasts for emerging markets (EMs) primarily because of the sub-1 per cent growth expected in the Asian growth engines of China and India.

The problem of falling commodity prices, capital outflows and more limited policy flexibility are only exacerbating the troubles, it added.

While Mexico, Brazil, Russia, South Africa and Turkey have all seen big GDP forecast adjustments, China and India are now expected to see sub-1 per cent growth.

"We expect an outright contraction in EM GDP in 2020, a development unprecedented since the 1980s. We expect supply responses and a relaxation of lockdowns to help oil prices to recover in 2H from the current lows, which are being exacerbated by storage capacity issues in the US and elsewhere," it said.

The decline in global GDP equates to a USD 2.8 trillion fall in global income levels relative to 2019 and a loss of USD 4.5 trillion relative to Fitch's pre-virus expectations of 2020 global GDP. It expects the Eurozone GDP to decline by 7 per cent, US by 5.6 per cent, and British GDP by 6.3 per cent in 2020.

The biggest downward revisions are in the Eurozone economies, where the measures to halt the spread of the pandemic have already taken a very heavy toll in Q1.

"We have cut Italy's growth to -8 percent following official indications that GDP already fell 5 percent in 1Q and after a recent extension of the lockdown there," it added.

Italy has been on the longest lockdown as it has suffered the worst toll with over to 25,000 deaths so far.

Official estimates also point to France and Spain experiencing near 5 per cent declines in GDP in Q1, with the Spanish outlook hit particularly hard by the collapse in tourism, said Coulton.

Even allowing for a slightly less negative outlook for Germany, where the headroom for policy easing is greater and the benefits of a recovery in China will be felt more directly, the Eurozone GDP is expected to shrink by 7 per cent, Coulton added.

"No country or region has been spared from the devastating economic impact of the global pandemic. We now anticipate that GDP in both the US and the Britain where lockdowns started a little later than in the Eurozone, will plunge by over 10 percent (not annualised) in 2Q, compared to forecasts of around 7 percent in our early April update. This will result in annual GDP declines of around 6 percent, despite aggressive macro policy easing," the report warned.

"Macro policy responses have been unprecedented in scale and scope and will serve to cushion the near-term shock. But with job losses occurring on an extreme scale and intense pressures on small businesses, the path back to normality after the crisis subsides is likely to be slow.

"Our forecasts now show US and Eurozone growth remaining below pre-virus 4Q of 19 levels through the whole of 2021," added Coulton.

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