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The global spread of the COVID-19 epidemic is the single biggest
risk facing the world economy in early 2020. IHS Markit has been
producing and will continue to produce a series of briefings that
cover the impacts of the epidemic on the outlook for various
countries and industries.
COVID-19 Recovery will be U-shaped
IHS Markit estimates that global growth in
2020 will be 1.7%, compared with 2.5% in our February baseline, and
2.7% in 2021 compared with the earlier forecast of 2.8%.
While the US economy will be hurt by the
effects of the virus, we believe that the momentum of the economy
is strong enough to avoid a recession. On a calendar-year basis, we
are now predicting 1.8% growth in both 2020 and 2021, compared with
the previous forecast of 2.1% in 2020 and 2.0% in 2021.
Europe is likely to be harder hit, with
Germany and Italy in or near
recession before the epidemic. This could well drag the rest of the
eurozone into recession. For 2020, the IHS Markit eurozone forecast
has been cut from 0.9% to 0.0%, while the 2021 growth rate has been
reduced from 1.1% to 0.9%.
The epidemic could not have come at a worse time for
Japan, which suffered a fourth quarter contraction
of 6.3%, annualized. For the moment, we are assuming that that the
summer Olympics in Tokyo will proceed as planned. Even with that,
real GDP will shrink by 0.3% in 2020, compared with our February
forecast of positive 0.2% growth. For 2021 we expect growth of
0.9%, compared with last month's estimate of 1.0%.
In China, the rapid spread of the virus over
the past two months and the aggressive quarantine policies of the
central government mean that there was likely a sharp contraction
in real GDP in the first quarter of this year, which will be
followed by a modest recovery in the second. With this, we now
predict growth of only 4.3% this year, compared with 5.4% a month
ago, and 6.4% in 2021, compared with the prior forecast of
6.0%.
The impact on the rest of the emerging world will vary with the
incidence of the epidemic (e.g. Iran will get hit
very hard) and the transmission mechanism through lower global
growth and lower commodity prices. Few, if any, countries will be
immune.
Industry impacts
In 2020, the motor vehicles & parts
industry will be hit most severely, down 4.4%* globally,
followed by computer & electronics (-1.9%*
globally) and restaurants (-1.3%* globally). The
light vehicles sales market will be down 5.1% globally (number of
units).
*Loss in value added linked to the Coronavirus pandemic
(percent deviation from the February 2020 forecast)
The motor vehicles & parts industry will contract in most
regions in 2020 - with the biggest declines seen in Japan, China,
South Korea and the United States.
Transportation services will contract in Italy
(-0.7%) and Japan (-0.4%) in 2020.
The restaurant and recreation sector will also fall in 2020,
down 1.5% in Japan, 1.2% in South Korea and 2.4% in Italy,
respectively.
By 2021, all industry segments will see a return to growth.
Regionally, Japan, the Euro area and Latin America show weakest
growth across a range of industries.
ECB: Additional stimulus on the way, but how much and
how soon?
IHS Markit expects the ECB to announce yet another package of
easing measures on 12 March.
This is likely to include an enhancement of liquidity
provision, a 10-bp deposit facility rate (DFR) cut, and a modest
increase in the monthly pace of net asset purchases (probably
EUR10-20 billion).
We see a risk, however, that the ECB might fall short
(temporarily), disappointing market expectations.
Either way, even a wide-ranging package of measures will make
little difference to the near-term fall-out on the economy from the
spread of the COVID-19 virus. At best, it will mitigate some of the
financial market spillover effects.
Italy, which is effectively already in recession, will bear the
brunt of the damage in the near-term. But the multiple transmission
channels of this shock suggest the eurozone overall is likely to
follow into recession in coming quarters.
Given this backdrop, we doubt that the pressure on the ECB to
ease further will diminish quickly even if a range of measures is
announced shortly.
PMI surveys: Global economy contracted at the steepest
rate since 2009
The coronavirus disrupted supply chains and hit sectors such as
travel, tourism and transport. The downturn was led by China, with
deep downturns also seen in Hong Kong SAR, Japan and the US.
The percentage of respondents who cited COVID-19 as a negative
factor was most highly concentrated in the hard-hit Asia Pacific
region. By comparison, a relatively lower percentage of UK and US
firms referenced the virus in negative sentiment comments in
February, but those numbers are expected to rise in the March
surveys.
February data signaled widespread disruption across sectors
stemming from the coronavirus outbreak. Eight sectors posted the
fastest falls in output on record during the month, since the
global sector data were first compiled in October 2009. In
contrast, the pharmaceuticals & biotechnology sector saw growth
in activity in February, posting the fastest expansion since
December 2018.
Posted 11 March 2020 by Chris Williamson, Chief Business Economist, IHS Markit and
Ken Wattret, Chief European Economist, IHS Markit and
