A global recession brought on by the coronavirus pandemic is poised to be deeper than that of the 2008-2009 financial crisis.
According to the IHS Markit Global Economic Forecast Flash by chief economist Nariman Behravesh and chief international economist Elisabeth Waelbroeck-Rocha, most economies around the world should expect to not recover to pre-COVID 19 levels for two to three years.
In the note, Behravesh and Waelbroeck-Rocha point out that real world GDP is expected to plunge 2.8% in 2020, compared with a drop of 1.7% in 2009. Meanwhile many major economies will see double-digit declines (at annualised rates) in the second quarter, with the contraction continuing into the third quarter.
“It will likely take two to three years for most economies to return to their pre-pandemic levels of output,” they said in the note.
“More troubling is the likelihood that, because of the negative effects of the uncertainty associated with the virus on capital spending, the path of potential GDP will be lower than before. This happened in the wake of the global financial crisis.
“A sizeable and aggressive policy response will help to limit the downturn and bolster the upturn. We are beginning to see a much more effective fiscal and monetary response in recent days. While these moves are probably not big enough, they will act as circuit breakers and prevent the COVID-19 recession from becoming far worse.”
Also on Monday 30 March, a new analysis by the Centre for Business and Economic Research (CEBR) warned that the UK faces its deepest recession since the financial crisis and soaring unemployment as firms take a hammering from the coronavirus, a think tank has warned.
Britain’s goods and services output will plummet by 15% between the first and second quarters of 2020, it said.
IHS Global Insight said that a number of European economies are going to be worst hit. The note says: “Europe, where the number of cases continues to grow rapidly and lockdowns are pervasive, will see some of the worst recessions in the developed world, with 2020 real GDP drops of approximately 4.5% in the eurozone and UK economies.”
“Italy faces a decline of 6% or more. The peak GDP contractions expected in the second quarter of 2020 will far exceed those at the height of the global financial crisis,” economists added.
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