Nariman Behravesh, chief economist, and Sara Johnson, executive director of global economics, at IHS Markit, said all signs point to second-quarter real gross domestic product (GDP) in the U.S. and European economies “being one for the records,” with double-digit, quarter-on-quarter declines in the U.S., Eurozone and U.K.
The expectation is then that growth will return in the third quarter in the U.S. and European economies, but 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 percent in the U.S., 8.7 percent in the Eurozone and 12.2 percent in the U.K.
China’s record first-quarter decline has been followed by a second-quarter rebound that will lead to annual growth of 0.5 percent, the economists wrote in their report. The result is that global real GDP is projected to decrease 6 percent in 2020–more than three times the 1.7 percent contraction in 2009 during the global financial crisis.
“Ironically and mercifully, the recessions triggered by the COVID-19 pandemic in the developed economies are likely to have been short,” the economists said. “IHS Markit estimates that the recession lasted two months in the United States and Eurozone (March and April) and three months in the U.K. (March, April, and May). For the U.S. economy, this would be the shortest recession on record (back to the 1850s). The prior record for the shortest recession was the six-month-long 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 has bounced back sharply, according to the forecast issued Tuesday.
However, with the exception of China, the indexes are still below 50, the demarcation line between contraction and expansion, IHS noted. This indicates that while the worst is over, the recovery is likely to be a “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, said IHS Markit, which predicts that global trade will contract at a double-digit 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,” Johnson and Behravesh said. “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.”