KUALA LUMPUR: The coronavirus crisis is crushing global economic growth, according to Fitch Ratings in its latest quarterly "Global Economic Outlook” (GEO) published today.
"The level of world GDP (gross domestic product) is falling. For all intents and purposes we are in global recession territory," said Brian Coulton, chief economist at Fitch.
The firm has nearly halved its baseline global growth forecast for 2020 to just 1.3 per cent from 2.5 per cent in the December 2019 GEO.
The revision leaves 2020 global GDP US$850 billion lower than in the previous forecast.
“But we could very easily see an outright decline in global GDP this year if more pervasive lockdown measures have to be rolled out across all the G7 economies.
“Emergency macro policy responses are purely about damage limitation at this stage but should help secure a 'V-shaped' recovery in 2H20, although this assumes that the health crisis eases.”
Fitch said the shock to the Chinese economy had been very severe.
“GDP is likely to fall by over five per cent (not annualised) in 1Q20 and to be down by one per cent year-on-year. Falling GDP in China is virtually unprecedented and, in the near term at least, these numbers look worse than most previous hypothetical 'hard-landing' scenarios.”
The good news is that the daily number of new Covid-19 cases in China has fallen very sharply, which should pave the way for a marked economic recovery in 2Q19 - high-frequency indicators already point to this starting in March.
Nevertheless, Fitch said the delayed impact of supply-chain disruptions and lower Chinese demand on the rest of the world would continue to be felt profoundly for some time, particularly in the rest of Asia and the eurozone.
The interruptions to economic activity seen in China - and now in Italy - are on a scale and speed rarely seen other than during periods of military conflict, natural disasters or financial crises.
Even though Fitch expects a recovery in China from 2Q20, Chinese growth is expected to fall just 3.7 per cent for the year as a whole, down from 6.1 per cent in 2019.
“We forecast Italian GDP to fall by teo per cent this year and Spanish GDP by almost one per cent,” it added.
Fitch said its baseline forecasts do not yet assume that full-scale lockdowns take place in across all the major European countries or the US (forecasts were finalised on 16 March).
”But even on this basis we now expect eurozone growth to be minus 0.4 per cent this year. The baseline forecast for US growth is one per cent in 2020 compared with a pre-virus outlook of two per cent and GDP is expected to fall by 0.5 per cent (or two per cent annualised) in 2Q20.“
It expects global growth to fall to 1.3 per cent in 2020 from 2.7 per cent in 2019, which would be weaker than global downturns in the early 1990s and in 2001.
Fitch’s oil price forecast has been lowered to US$42/bbl (Brent) for 2020 (annual average) from US$62.5/bbl in the December GEO.
“With the collapse of 'OPEC+' co-operation boosting prospects for OPEC supply, we now expect oil prices to average US$48/bbl in 2021 compared to our previous forecast of US$60/bbl,” it said.