Global economy to contract in 2020 as uncertainty around coronavirus pandemic takes toll: Moody’s

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  • Moody’s expects real GDP in the global economy to contract by 0.5 percent in 2020.
  • Before the emergence of the coronavirus, Moody was expecting the global economy to grow by 2.6pc this year.

The US-based credit rating agency, Moody Investor Services has revised its global growth forecasts downward for 2020 amid the rising economic costs of the coronavirus shock, particularly in advanced economies, and the policy responses to combat the downturn are becoming clearer.

“We now expect real GDP in the global economy to contract by 0.5 percent in 2020, followed by a pickup to 3.2pc in 2021. In November last year, before the emergence of the coronavirus, we were expecting the global economy to grow by 2.6pc this year,” said Moody.

The credit rating agency stated that their forecasts reflect the severe curtailment of economic activity in recent days as the coronavirus has spread throughout the world. “Lockdowns and other social distancing measures have expanded throughout advanced and emerging market countries. Financial sector volatility has exploded to levels last seen during the 2008 global financial stress, despite the expectation of rapid policy response from major central banks and governments.”

Moody forecasted that the severe compression in demand over the next two to four months will likely be unprecedented, as data from China and Europe reveals. “Moreover, the widespread loss of income for businesses and individuals across countries will have a multiplier effect throughout the global economy. Over the next few months, job losses will likely rise across countries. The speed of the recovery will depend on to what extent job losses and loss of revenue to businesses is permanent or temporary. Even in countries where governments are in a position to provide support through large and targeted measures, some small businesses and vulnerable individuals in less-stable jobs will likely experience severe financial distress.”

Moody added that for the central banks, it is imperative to limit the duration of the shock to one or two quarters to prevent it from turning into a banking or broader financial sector crisis.

The agency expects policy measures to continue to grow and deepen, as the consequences of the shock in terms of depth and duration become clearer.

“Given the tremendous uncertainty, there is a range of plausible outcomes. The risks to our baseline forecasts remain firmly to the downside. In particular, a sustained pullback in consumption and prolonged closures of businesses would hurt earnings, drive layoffs and weigh on sentiment. The longer these conditions persist, the more they would potentially feed self-sustaining recessionary dynamics, and expose existing vulnerabilities in the real economy and in financial sectors.”

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