The global economy is already in recession - the worst since the Great Depression

The global economy is already in recession - the worst since the Great Depression
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16 September , 14:16
Politics
Photo: twitter.com
Covid continues to affect the global economy. In the third quarter of this year the forecast for the development of the developed and developing countries was reduced again. The world has entered a recession, the worst since the Great Depression of the 1930s.

Economists keep a close eye on the rapidly changing and highly volatile world environment. Euromonitor International Analytics has released a report on macroeconomic developments in the key economies of the world for the 3rd quarter, as well as a forecast until the end of the year, based on these numbers and trends. The level of global activity, despite the relaxation after widespread quarantine, remains low. The economy is developing along the path of the worst of the depressions; the fight against the pandemic will cost humanity from 3% to 6% of world GDP. And although in 2021 experts predict a significant recovery and growth of 3.5% -7%, the development indicators will be 5.5% lower than those that governments and experts laid down before the pandemic.

The expert had to reduce his forecast for world GDP this year by 1.5% , compared with his forecast in May this year. Developed economies will slow down by another 1.2%, developing countries will lose 1.7% in addition to the May indicators. The situation in Western Europe, India and Latin America will be even worse than expected.

The situation remains extremely unstable, as new waves of the pandemic and the related decline in industry are likely to occur, and there has never been a clear understanding of when a vaccine against coronavirus or reliable drugs against covid will appear. Therefore, the forecast is calculated with a probability of 41-51% , and in addition to the baseline development scenario, there are two others with more gloomy prospects.

The baseline scenario is based on the assumption that the vaccine will be massively distributed in the middle of next year. Given the fact that this time governments are taking all possible steps to fund research, but the previous successful vaccine took 4 years to develop, experts believe the risks are too many and suggest two worst-case scenarios. According to them, the vaccine will appear in 2022-2023.

Basic scenario

Global GDP will fall by 3-6% in 2020 and grow by 3.5-7% in 2021, if the percentage of infected in the world reaches 15% , and the death rate remains at 0.3-1.3% . Experts have laid down in this scenario one global wave in 2020 and two possible local ones. Consumption and business confidence indices will drop to 40 points, while stock quotes will decline by 30%, compared to the 2019 forecast.

Pessimistic scenario 1

If in 2020 the second world wave of the pandemic comes, and in 2021 - the third, then world GDP will decrease by 5.5-7.5%. Every fourth person on the planet will be infected. The mortality rate will remain at the baseline level - no higher than 1.3%. However, social distance measures will last for a cumulative period of one to one and a half years. Stock quotes will drop even more - up to 40%. The likelihood of such a scenario, experts say, will range from 25 to 35%.

Pessimistic Scenarios 2 and 3

These two predictions are based on the assumption that the vaccine will not appear until 2022-2023, which will lead to the preservation of quarantine in one form or another. Due to quarantine measures, consumption will significantly decrease, business profitability will fall, unemployment will increase, and salaries will be cut. Businesses are much more likely to run out of liquidity, and interest on loans will rise, leading to bankruptcies and company closings.

Global GDP will contract by 6-8.5% , and growth in 2021 will not exceed 3%. Every third inhabitant of the planet will be infected, the mortality rate will be much higher - from 0.5% to 2%. Quarantine measures will stretch up to 10 quarters, since the forecast includes up to 4 waves of the pandemic.

USA and China

In the basic version of the Euromonitoring forecast, the US GDP for 2020 will decrease by 5-8% with inflation of 0.7%, in 2021 the economy will grow by 2.2-5.8%. The American economy will reach 2019 indicators only in 2022. The reduction in consumption led to the fact that the US GDP contracted 9.5% in the second quarter.

In July this year, retail trade grew by 5.8% compared to the previous year, which indicated a complete recovery in retail. However, at the end of July, the number of infected people in the United States went up sharply, and quarantine measures were again tightened. In August, Google reported a 14 percent reduction in American mobility. Since Republicans will not support an increase in unemployment benefits, demand will further decline.

The only country to end this year with a plus will be China. Experts predict GDP growth of 1.2% with inflation of 2.9%. In 2021, the Chinese economy may grow to 9%.

The actual GDP in the second quarter was only 3% below the forecast before the pandemic. However, consumption declined in both retail and service sectors. The Chinese government has begun to actively develop and invest in infrastructure projects, but such measures are designed for the short term. In the first half of the year, China's industrial production declined by only 1.6% and per capita consumption by 9.3%. These figures show that the pandemic has hit primarily the population.

Eurozone

The pandemic hit European countries hard. In 2020, GDP is expected to fall by 9.4% . The rebound in 2021 will be 3.5-7%. Economic recovery in European countries is happening faster than expected. In June, the consumption level almost recovered. But the fall in GDP in the second quarter was 15%. Therefore, experts downgraded their forecast by 2.2%. European governments are struggling to avoid quarantine, as they did in March. However, its likelihood, albeit a local one, increased significantly at the end of the third quarter. At the end of July 2020, the EU adopted an economic recovery package worth 750 billion euros. 390 billion euros to be disbursed in grants. However, this money will not enter the economy until 2021, and tax incentives will start working even later. There is great uncertainty about how these funds will be distributed among EU members, but experts raised their forecast for 2021 and beyond by 0.3-0.6 percentage points.

In European countries, the forecast is very different. If for Germany experts predict a drop in GDP of 6.9% this year with a rebound of 3.5% in 2021, then the French and Italian economies will fall by 11% and 12%, respectively.

Russia

According to the baseline forecast, Russia's GDP will decline in 2020 from 5.8% to 7.9% . In 2021, the situation will improve and GDP will grow by 3.2% . But only in 2023 will the Russian economy reach the 2019 level. In the second quarter, the decline was 8.5%, but in the third quarter there were signs of improvement. The infection curve has become flatter, which led to an increase in consumption and business activity indices.

The Central Bank of Russia cut the interest rate by 25 basis points, as a result, inflation began to rise in the country: in May it was 3 percent, and in June it rose to 3.8%. The Russian government has adopted a package of fiscal measures to support the economy in the amount of 3.4% of GDP. This should cover the rise in unemployment benefits and help small and medium-sized enterprises obtain cheap loans and tax deferrals.

Global risks

Meanwhile, global risks have risen not only because of the pandemic, but also other factors affecting the economy, experts say. In Europe, the likelihood of the UK leaving the EU without a treaty has increased. In the United States, Joe Biden, the Democratic nominee, is rated higher than incumbent President Trump. But even if Biden wins, which is too early to talk about now, the US trade wars with China will not end. All these and other factors will influence the growth of risks in the global economy. However, the risks from the second, third and other waves for the world are incomparably higher.

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