A recovery in worldwide economic output to pre-pandemic levels will likely take two to three years, IHS Markit economists said in their May “Global Economic Forecast.”
The global economy is in the midst of the worst downturn since the 1930s, with China’s real gross domestic product (GDP), adjusted for inflation, falling at a record annual rate of 33.8 percent in the first quarter of 2020 compared to the fourth quarter of 2019, IHS chief economist Nariman Behravesh and executive director of global economics Sara Johnson wrote in their report.
In comparison, IHS Markit estimates that U.S. real GDP will tumble a record 36.5 percent or more in the second quarter. Modest recoveries for the U.S. and China–the world’s two largest economies–are expected in the second half of the year.
For 2020, the economists project real global GDP to fall 5.5 percent, which would be more than three times the contraction in the 2009 aftermath of the Great Recession. Given the “unrelentingly bad news and data on the COVID-19 virus and the economic carnage,” there is high likelihood that the near-term outlook will get worse before it gets better, they wrote.
“The fastest we can expect output in key economies to return to pre-pandemic levels is early 2022,” they wrote, noting that the exception is China, where the infections occurred earlier and recovery has begun. “In many economies, the recovery could be even more prolonged.”
The report noted that attention is now beginning to shift from the depth of the recession to the shape and strength of the recovery. However, the major uncertainty about the path of the virus makes any assessment about the economic outlook highly challenging.
The current IHS Markit baseline forecast is predicated on three working assumptions–that new global infections will generally peak by the late summer, an effective and widely offered vaccine will be not be available until late 2021 or early 2022 and that the lockdowns will continue to be eased gradually throughout the summer and fall.
“These imply that the world will be inching toward ‘normalcy’ over the coming year,” the economists wrote.
“A combination of factors will make the post-crisis recovery unusually slow,” they wrote. “A tidal wave of bankruptcies among small and large industries will make restarting the manufacturing sector more challenging than in typical recoveries. Moreover, the damage to the finances of households and businesses will substantially delay any return to old spending levels.”
They stressed that the fear of crowds will postpone any return to so-called normal in the travel and leisure industries.
“Even massive stimulus will only offset a small part of plunging growth,” they added. “Crucially, any resurgence in the number of infections will only worsen these trends. The recent flare up of cases and re-imposition of restrictions in South Korea and parts of China are worrisome.”