The recession being caused by the COVID-19 pandemic is now forecast to be deeper than that of the Great Recession of 2008-2009, according to a new report from IHS Markit.
Most economies won’t return to pre-pandemic levels of output for two to three years, Nariman Behravesh, chief economist at IHS Markit, and Elisabeth Waelbroeck-Rocha, chief international economist at the global analytics and consultancy firm, said.
IHS’s new Monday forecast is much more pessimistic than its regularly scheduled March outlook released two weeks ago and based on major downgrades to forecasts of the U.S. economy and oil prices.
“The risks remain overwhelmingly on the downside and further downgrades are almost assured,” Beravesh and Waelbroeck-Rocha said.
IHS Markit now believes real world gross domestic product (GDP) should plunge 2.8 percent in 2020 compared with 2009’s 1.7 percent drop Many key economies will see double-digit year-over-year declines in the second quarter, with the contraction continuing into the third quarter, the report said.
Based on recent data and developments, IHS Markit has cut the U.S. 2020 forecast to a decline of 5.4 percent. Tied to the deep U.S. recession and collapsing oil prices, IHS Markit expects Canada’s economy to contract 3.3 percent this year, before seeing a modest recovery in 2021.
“Europe, where the number of cases continues to grow rapidly and lockdowns are pervasive, will see some of the worst recessions in the developed world, with 2020 real GDP drops of approximately 4.5 percent in the Eurozone and U.K. economies,” the economists said. “Italy faces a decline of 6 percent or more. The peak GDP contractions expected in the second quarter of 2020 will far exceed those at the height of the global financial crisis.”
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The report noted that Japan was already in recession before the pandemic and the postponement of the summer Tokyo Olympics will make the downturn even deeper. IHS Markit expects a real GDP contraction of 2.5 percent this year and a very weak recovery next year for Japan.
China’s economic activity is expected to have plummeted at a near-double-digit rate in the first quarter before recovering sooner than other countries, where the spread of the virus has occurred later. IHS Markit predicts growth of just 2 percent in 2020, followed by a stronger-than-average rebound in 2021.
“Emerging markets growth will also be hammered,” the economists said. “Not only are infection rates rising rapidly in key economies such as India, but the combination of the deepest global recession since the 1930s, plunging commodity prices and depreciating currencies compounding already dangerous debt burdens will push many of these economies to the breaking point.”
IHS said it will likely take two to three years for most economies to return to their pre-pandemic levels of output. Added to that is the likelihood that the pandemic’s negative effects and uncertainty will pound capital spending, sending GDP below historic levels, equal to or worse than in the wake of the global financial crisis more than a decade ago.
“A sizeable and aggressive policy response will help to limit the downturn and bolster the upturn,” Beravesh and Waelbroeck-Rocha added. “We are beginning to see a much more effective fiscal and monetary response in recent days. While these moves are probably not big enough, they will act as circuit breakers and prevent the COVID-19 recession from becoming far worse.”