Adjustments to lockdowns and vaccine development will determine length of recession
Apart from the devastating affect Covid-19 is having on people and their families, its impact on economies around the world is expected to result in the worst recession since 1980. What makes this recession so much more impactful is that it is affecting the entire world with almost every country expected to experience negative growth in 2020. As the recession is reverberating through supply chains, Atradius expects global trade to shrink 15% this year, which historically is a sharp drop. A robust economic recovery is still in the cards for 2021, however, the pace of the recovery remains very uncertain and depends on the lifting of lockdown measures. The economic cost of this recession will be high, given its impact on labour markets, business failures and the fiscal position of countries. Governments around the world are implementing sizable fiscal packages and loose monetary policy to try and take the sharp edges off this recession.
Advanced economies are expected to feel the brunt of the recession with a cumulative drop in GDP of 6.6%. The United Kingdom, already burdened by its exit from the European Union, is looking at a 10.8% decline, while the Eurozone is not expected to fair much better, showing a drop in GDP of 8.0%. The United States and Japan are forecast to experience slightly less steep declines of 6.1% and 6.0% respectively.
Growth in emerging markets will also drop sharply, and the rapid increase in the spread of the coronavirus in a number of the larger emerging economies recently, means that forecasts could worsen in the coming months. China may be the only major economy able to avoid recession this year, however with only meagre growth expected, it could join the rest of the world in negative growth. Russia, which was hit by Covid-19 while in the middle of a price war with Saudi Arabia, is being severely impacted by the low oil price, its primary source of income, and lockdowns driving down demand for oil. The combination has lowered its GDP growth forecast to -6.2%. Brazil has reacted to Covid-19 very late and is now experiencing the fastest increase in infections of any country worldwide; economically it is not expected to do any better as GDP is forecast to decline 7.5%. Mexico, is experiencing a significant drop in demand from its main export partners in the US and Canada.
Our baseline forecast assumes that either a vaccine will be developed or that world economies will adapt to the new norm of social distancing in an economically viable way. Under these assumptions, we anticipate a return to GDP growth in 2021, but with the growth coming at a slower pace than the decline did. However, if neither of these two assumptions take place, the outlook will become less positive.
Andreas Tesch, Chief Market Officer of Atradius commented, “The lockdowns across the world, while necessary, have had a huge impact on the global economy. However, when effective and successful they will enable us to return to growth faster. During this unique period, detailed attention to credit management is essential to success.”