GDP began to fall in the US, the eurozone and Japan amid outflows from emerging markets. Economists at the Institute of International Finance (IIF) sharply lowered their forecast for global economic growth in 2020 to 0.4% due to a shock in world markets. The economies of the US, the eurozone and Japan are already in recession, experts say.
The Institute of International Finance (IIF, a Washington-based global association of financial institutions) lowered its forecast for global economic growth in 2020 to 0.4%, follows from a review of the organization received by RBC. This is one of the lowest published global growth forecasts for this year.
Just two weeks ago, IIF lowered its forecast for global GDP growth from 2.6% to 1.6%, but since then the shock associated with COVID-19 coronavirus infection has “transformed into a complete sudden stop of global capital markets”. Uncertainty is very high, and forecasts have to be updated “almost daily”, the institute makes a reservation.
30% of the global economy is already in recession
The US, the eurozone and Japan are already in an economic recession that will last until the middle of the year, writes IIF chief economist Robin Brooks. The United States accounts for 15.1% of global GDP, the eurozone – about 11%, Japan – about 4%, according to the IMF.
US GDP in Q1 2020 will decrease by about 0.2% compared to the previous quarter, in Q2 the decline will increase to 2.3% compared to the previous period. “So the US is already in recession,” states IIF.
The economy of the eurozone will decline in 2020 by 2.8%, the Japanese economy – by 1.5%.
China will grow only 3.5% after growing 6.1% in 2019, which has already been called the slowest growth of the Chinese economy since 1990.
IIF notes that a key assumption is the expected economic recovery in H2 2020, which means that the coronavirus epidemic will decline by summer. But if the pandemic drags on, even more pessimistic forecasts may materialize.
Shortage of dollars
“OPEC's price war destabilized fragile markets without it. The sharp drop in oil prices and the growing uncertainty associated with COVID-19 provoked a sudden halt in global markets”, says IIF.
“We record unprecedented capital outflows from emerging markets, and they are concentrated outside of China. This situation is compounded by growing stress in the US credit markets and evidence of a lack of dollar liquidity in the eurozone and Japan”, notes IIF.
Amid a lack of dollar funding outside the United States, the Federal Reserve System (FRS) has expanded the provision of dollar liquidity to the world's leading central banks through swap lines. Under this mechanism, for example, the European Central Bank takes dollars from the FRS, providing the euro in return, and can then lend these dollars to European banks.
Earlier this week, US bank JP Morgan sharply lowered its forecast for US economic growth, predicting a 3.7% drop in GDP in Q2 to the previous quarter. In this case, the quarterly decline will be even greater than in the fourth quarter of 2008, at the peak of the Great Recession. S&P rating agency predicted a global recession in 2020.