Global economy to recover to pre-coronavirus levels only in 2022, Says EIU

July 15, 2020 (MLN): The expected rebound in the third quarter of 2020 will be far less impressive than the headline numbers suggest as the Covid-19 pandemic will have a huge and lasting negative effect on the global economy; 2020 and 2021 will be lost years in terms of growth.

“And the global economy will recover to pre-coronavirus levels only in 2022,” a report by the Economic Intelligence Unit (EIU) says.

However, this global forecast masks big disparities between countries. Some members of the G7 and BRICS groupings will recover quickly, whereas others will take up to four years to return to pre-coronavirus GDP levels.

China will be an exception, as the country is not expected to enter a recession this year, the report highlighted.

As the pandemic-induced recession has wiped out global GDP during the first half of this year, the report forecasts that most economies will start to recover in the third quarter, posting double-digit rates of quarterly growth. However, their recovery will start from a low base, given the economic shock experienced in the second quarter.

This means that impressive rates of quarterly growth in July-September will not mean much. In fact, the output of G7 and BRICS countries in the third quarter of this year will remain low, and in some cases at levels last recorded more than two decades ago, the report added.

Accroding to report, among G7 and BRICS countries, India looks the best placed to recover the fastest. In July-September India’s output will be similar to that registered one year ago which is an impressive performance, however, there are high downside risks to this forecast, as India is fast becoming a new coronavirus hotspot, and the lack of a social safety net for many workers will have pushed up poverty levels.

Going by the report, US economic story also looks broadly positive. The country ’s third-quarter output will be similar to that registered in the same period of 2017. Its economy should be back to pre-coronavirus GDP levels in 2022, highlighting the flexibility of its labour market. However, there are grave risks to this forecast, as many US states are re-imposing social distancing measures in an attempt to curb a recent rise in number of coronavirus cases.

Beyond these two positive instances, the coronavirus pandemic has wiped out about four years of economic growth for Canada, France, Germany and the UK. However, the recovery in most of these countries will be swift by international standards, owing to generous furlough schemes (which have prevented mass layoffs) and massive fiscal stimulus programmes.

The report further stated that Germany, the EU’s traditional growth engine, will be back to pre-coronavirus GDP levels by late 2022. This will be positive news for the rest of the euro zone and eastern European economies, which are highly dependent on Germany ’s manufacturing sector.

Canada and France will also have recovered by end-2022, although high levels of unemployment in both countries will threaten their recovery.

As per report, the UK is an outlier, recovering only in 2023; this may be because the end of the Brexit transition period in December 2020 will cause a further economic shock.

Brazil, Japan, Russia and South Africa form a third group of countries, which will experience a slower recovery. In July-September their output will have shrunk to levels last recorded in 2009 (Brazil), 2012 (Japan, Russia) and 2013 (South Africa). In turn, the recovery of these economies to pre-coronavirus GDP levels will be slow; output will not be back to 2019 levels before 2023 (Brazil) or 2024 (Japan, Russia and South Africa), the report added.

Italy is an outlier among G7 countries. As per the report, in the third quarter of this year Italy ’s output will be at levels last registered in 1997. This reflects the combined impact of previously stringent lockdown measures, a bleak outlook for the crucial tourism sector and the lack of fiscal space to boost the economy.

Unsurprisingly, Italy ’s recovery will also be slow, returning to pre-coronavirus GDP levels only in 2024. The country was a thorny issue for the EU before the pandemic started, given its high level of indebtedness. The pandemic will heighten pre-existing political tensions, as Italy increasingly looks like the sick man of Europe, the report said.

Posted on: 2020-07-15T16:22:00+05:00