(Bloomberg) —
The world economy is guaranteed to enter its worst recession since the financial crisis in the first half of this year with a recovery subsequent months likely but not assured, according to Bloomberg Economics.
In a report released Monday, Chief Economist Tom Orlik said “a lot needs to go right” for global growth to rebound after the coronavirus leads to a severe first-half contraction. For now, they are predicting a 0.2% GDP decline for the whole year.
“Stabilization in the second half depends critically on countries’ ability to get the virus under control — and provide sufficient stimulus to offset lost income,” Orlik said in the report.
Among their other projections are for the U.S. to shrink 0.5% in 2020 and the euro area 2%. China’s economy will expand 1.4% in 2020 after contracting 11% in the first quarter, although that assumes a recovery begins in the second quarter when global demand is unlikely to provide much support.
“Those are abysmal numbers, and the pace of deterioration in expectations is breathtaking,” said Orlik. “Even so, it’s important to keep in mind that — in contrast to the Asian financial crisis, the great financial crisis, or the European sovereign debt crisis — the coming contraction is not a reflection of underlying economic imbalances. When the outbreak is over, that means there’s hope growth can get rapidly back on track.”
To avoid a longer downturn, Orlik said central banks need to be aggressive in providing stimulus, back-stopping debts and preventing financial stress from turning into a debt crisis. But governments also need to deliver massive spending to replace lost incomes and prevent bankruptcies, he said.
“The risk is that policy moves too little and too slowly,” said Orlik.
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