The coronavirus pandemic and lockdowns imposed by governments on both sides of the Atlantic have pushed the global economy into the sharpest downturn since the Great Depression, data released on Friday signalled.
Activity in Britain’s service sector slumped in March with the closely watched purchasing managers’ index falling from 53.2 in February to 34.5 in what IHS Markit, which compiles the index called “by far the fastest downturn in service sector output since the survey began in July 1996”.
The shock UK figures were mirrored across the world with the US economy shedding 710,000 jobs in early March, ending 113 months of continuous job growth. Activity figures for the dominant services sector slumped across Europe, almost regardless of when or whether each country put severe restrictions on their populations.
“This is a crisis like no other,” said Kristalina Georgieva, the head of IMF, warned. “Never in the history of the IMF we have witnessed the world economy coming to a standstill,” she said. “It is way worse than the global financial crisis.”
Worse data was about to come in April, economists said with many now predicting double-digit percentage declines in output in the second quarter as vast swaths of the world’s two most advanced economic zones shut down.
Pantheon Macroeconomics on Friday forecast the dreadful end of March data alone would cause a 1.5 per cent contraction of the UK economy in the first quarter, but that would be dwarfed by a 13 per cent drop in the second quarter.
Such a slump would be more than twice as large as the 2008-09 financial crisis and about twice as large as the worst scenario the Bank of England imagined could happen after a no-deal Brexit.
Across Europe, equivalent PMI data all fell about 20 points, from levels indicating a majority of companies were seeing business activity improving to levels below those seen in at the worst point of the 2008-09 financial crisis.
Italy, which went into lockdown first, had the weakest PMI index on record with a figure of 17.4, compared with a figure of 50 which represents the point at which an equal number of companies reported rising and falling activity.
The terrible data have led economists to slash forecasts for global growth, which were about 3 per cent at the start of March for 2020. Economists at Bank of America have cut their estimates repeatedly and now expect a contraction of 2.7 per cent, “considerably worse than the 2008-09 recession”.
With 10m initial claims for unemployment insurance in March in the US, economists expected weak payroll figures — but the reality was much worse than forecast.
David Riley, chief investment strategist at asset manager BlueBay. “Today’s report confirms, if this were needed, that the US and global economy is experiencing the most severe drop in output and income in modern history,” he added.
Governments and central banks on both sides of the Atlantic have responded with stimulus programmes designed to offer insurance to those who have lost regular work or companies that have had revenues dry up much faster than in a normal recession.
But they cannot prevent the shutdowns having a devastating effect on current business conditions, which will continue until the spread of Covid-19 is brought under control and restrictions can slowly be lifted.
Additional reporting by Philip Georgiadis
Source: Economy - ft.com
