Apr 08, 2020 (LBO) – The coronavirus pandemic is a game-changer, and we now expect global output to contract by 2.5 percent this year—an even deeper contraction than during the global financial crisis, a report by The Economist Intelligence Unit said.
The negative effect on growth will come via both demand and supply channels. On the one hand, quarantine measures, illness, and negative consumer and business sentiment will suppress demand. At the same time, the closure of some factories and disruption to supply chains will create supply bottlenecks.
The economic shock will be mostly concentrated in the first half of this year, with regional variations that follow the gradual spread of the pandemic across the globe, The EIU said.
“We expect a modest rebound in global output in the second half of 2020, provided that the spread of coronavirus is largely contained globally and no second or third waves of the pandemic occur. However, the impact on confidence and demand will be long-lasting. A rise in uncertainty will lead to increased precautionary savings among households and delayed business investment,” the report said.
“We believe that China’s full-year growth will be a mere 1%. Germany’s output will contract by 10% in the second quarter on a quarterly basis, and by 6% overall this year. The impact of the pandemic on US growth will be mainly felt during the second quarter of this year when we expect output to contract by 5.9% quarter on quarter. We now expect real GDP to contract by 2.9% in 2020.”
Prior to the coronavirus outbreak, The Economist Intelligence Unit expected global real GDP growth to be lacklustre this year, at 2.3% (at market exchange rates).