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All signs point to the second-quarter real GDP plunge in the US
and European economies being one for the records—with
double-digit quarter-on-quarter (q/q) declines in the United
States, eurozone, and United Kingdom. Anticipating that growth will
return in the third quarter in the American and European economies,
these downturns will still be the worst since the end of World War
II. For 2020 as whole, real GDP is projected to fall 8.1% in the
US, 8.7% in the eurozone, and 12.2% in the UK. Mainland China's
record first-quarter nosedive has been followed by a second-quarter
rebound, which will lead to annual growth of 0.5%. All this means
that global real GDP is projected to decrease 6.0% in 2020, more
than three times the 1.7% contraction in 2009 during the Global
Financial Crisis.
Ironically (and mercifully) the recessions triggered by the
coronavirus disease 2019 (COVID-19) pandemic in the developed
economies are likely to have been short. IHS Markit estimates that
the recession lasted two months in the United States and eurozone
(March and April) and three months in the United Kingdom (March,
April, and May). For the US economy, this would be the shortest
recession on record (back to the 1850s). The prior record for the
shortest recession was the six-monthlong downturn in 1980.
The intensity and quickness of the downturn are confirmed by the
IHS Markit
Purchasing Managers Index™ (PMI™) reports for May. After
unprecedented drops to record lows, PMI™ data for all the key
economies have bounced back sharply. However, with the exception of
China, the indexes are still below 50, the demarcation line between
contraction and expansion. Thus, while the worst is over, the
recovery is likely to be hard slog—even after an anticipated
short-term bounce. The global index of manufacturing export orders
remains deep in contraction territory, suggesting the external
demand outlook of China and other Asian export powerhouses is
highly challenging. IHS Markit predicts that global trade will
contract at a doubledigit rate in 2020.
Even with the beginnings of a recovery in place, the fallout
from this pandemic and the lockdowns can only be described as
massive. With millions of businesses shuttered and tens of millions
of workers unemployed, the economic and social costs continue to
rise and will stay elevated for a long time. This will require
continued and additional support from central banks and governments
and continued vigilance by health authorities vis-à-vis new waves
of the COVID-19 virus. Otherwise, this deep and brief downturn
could turn into something far worse.
Posted 16 June 2020 by Sara Johnson, Executive Director – Global Economics, IHS Markit and
