Global economy braced
The pandemic has inflicted enormous human costs right across the globe. The worldwide response, which has involved governments imposing a range of lockdown measures, will inevitably have a huge impact on global economic activity.
Contraction across Europe
The release of first quarter GDP data provided a foretaste of the economic damage the pandemic is set to wreak. In the UK, for example, output fell by 2% across the first three months of 2020, with the economy shrinking by a staggering 5.8% in March alone.
Data for the 19-country Eurozone showed an even larger decline, with output across the bloc falling by a record 3.8% in the January–March period. France and Italy both plunged into recession, with quarterly contractions of 5.8% and 4.7%, respectively, while the German economy also slipped into recession with first quarter GDP down 2.2%.
US and Japan economies shrinking
According to preliminary estimates, the US economy shrank at an annualised rate of 4.8% in the first quarter, ending a record streak of expansion stretching back to 2014. And the Japanese economy, which was already struggling following a sales tax hike last October, also fell, contracting at an annualised rate of 3.4% in the opening three months of 2020.
China’s economy also reeling
The growth rate in China fell sharply as well, with the world’s second-largest economy shrinking at an annualised rate of 6.8% during the first quarter. The Chinese authorities have now abandoned setting a growth target, which may be an acknowledgement of the challenges facing its struggling economy amid heightened international hostilities due to the COVID-19 fallout.
‘Sharpest downturn since 1930s’
Continuing uncertainties surrounding the future spread of COVID-19 and the likelihood of developing a successful vaccine obviously make it difficult to predict the future path of the global economy. However, the International Monetary Fund’s latest assessment suggests we are facing the steepest economic downturn since the Great Depression.
While the IMF has stressed that its predictions are marked by ‘a higher-than-usual degree of uncertainty’, it is forecasting a rebound next year with the global economy expected to grow at a rate of 5.4% as activity normalises1. However, if a second outbreak did occur, that could effectively keep the world in recession for a second consecutive year.
The value of investments can go down as well as up and you may not get back the full amount you invested.
The information contained in this article is purely market commentary and does not constitute investment advice.