Economic forecasts for 2020 continue to deteriorate, but there are signs that the worst may be over soon, Fitch Ratings says.
In a new report, the rating agency cut its forecast for global GDP in 2020, citing continued deterioration in the data flow for a number of major economies.
“World GDP is now forecast to fall by 4.6% in 2020 compared to a decline of 3.9% predicted in our late-April [forecast],” Fitch chief economist Brian Coulton said.
“This reflects downward revisions to the eurozone and the UK and, most significantly, to emerging markets excluding China,” he added.
Fitch now expects Canada’s GDP to drop by 7.1% this year, before rebounding by 3.9% in 2021.
Its forecast for the eurozone now sees GDP falling by 8.2% in 2020, down from its previous call for a 7.0% decline.
For the U.K., Fitch now sees a 7.8% contraction this year, and it expects output in the emerging markets (ex. China) to fall by 4.5% this year.
Fitch said that its forecasts for 2020 GDP growth for China, the U.S. and Japan are unchanged, and that there are now signs that “the collapse in global economic activity may be close to bottoming out.”
In particular, Fitch reported that initial monthly indicators for May point to improvements as lockdowns started to be eased.
Fitch noted that global macroeconomic policy stimulus has increased over the past month or so.
“We predict that global quantitative easing (QE) will reach US$6 trillion in 2020, equivalent to half of the cumulative QE purchases by the Fed, ECB, Bank of England and Bank of Japan combined in 2009-2018,” the rating agency said.
“This explosion in central bank liquidity has helped to secure a pick-up in bank credit to the real economy (specifically, to firms) in the past couple of months, a development that contrasts with the pattern in 2009.”
While the recovery will likely prove bumpy, Fitch expects a rebound in global GDP in 2021.
“We foresee a ‘technical’ pick-up in global GDP growth to 5.1% in 2021 — with U.S. and eurozone output rising by around 4% — but pre-virus levels of GDP are unlikely to be reached until mid-2022 in the U.S. and significantly later in Europe,” Coulton said.
However, Fitch also warned that an aggressive second wave of Covid-19 that results in renewed lockdowns “would lead to an even worse outcome.”
“Our downside scenario sees GDP falling by 12% in the U.S. and Europe in 2020 and global GDP down by more than 9%,” Fitch said.