The likelihood of a global recession brought about by moves to stem the coronavirus spread is a serious departure from economic forecasts going into 2020.
Now, the probability of a global recession is nearing 100% due to lockdowns, unprecedented monetary and fiscal policy changes and stock market plunges, according to money management economists.
But at the start of the year that figure was far lower.
"Going into 2020, the story was one of economic stabilization after a long decline. But that narrative has now been totally sunk by COVID-19," said Eric Lascelles, Toronto-based chief economist at RBC Global Asset Management Inc. He had the risk of a global recession at about 15%, a figure that has now risen to about 90%.
"That's a pretty big pivot," he added, although among developed markets only that probability was more like 35%. "We thought there was a real chance (of recession) there given the age of the cycle and protectionism. It was a higher than usual risk, but nothing compared to the near-100% chance today" he said.
The risk of a global recession is now at 100%, up from around 25% at the beginning of the year, said Martin Moryson, Frankfurt-based chief economist Europe at DWS Group.
Growth prospects have also plummeted. On March 31, S&P Global Ratings revised its global growth forecast for 2020 downward to 0.4%.
"We weren't gung-ho (going into 2020) but were saying the conditions were there for a reasonable pickup," said Shamik Dhar, global chief economist at BNY Mellon Investment Management in London. Global growth was forecast at 3.5%, U.S. growth at 2.5%, Europe was expected to grow at 1.5% to 2% and the U.K. forecast was 2%. The firm's forecast is now global growth of around -5% for much of the year, he said.
"The reason for (those original forecasts) was we had seen progress on a number of issues that had held back demand in 2019, most notably progress on trade talks between the U.S. and China, and some resolution on the Brexit question," Mr. Dhar said.
PGIM Fixed Income "started the year moderately bullish, with our forecast for global growth at a little over 3%," said Nathan Sheets, chief economist and head of global macroeconomic research, based in Newark, N.J. "While this performance was a bit below the longer-term trend, we believed that this 'lukewarm' outcome was likely to ensure that the expansion notched another year. The coronavirus has brought the longest-lived expansion of the post-crisis period to a decisive end," he said.
But there is a sliver of hope for growth once the coronavirus pandemic ends.
"One thing that gives room for optimism is that some of the data we saw before this struck suggests the economy might have been stronger than we were expecting," said William J. Booth, managing director, co-CIO and portfolio manager at Epoch Investment Partners Inc. in New York. "With everything thrown at it between monetary policy, the Fed cutting rates to zero, QE and the fiscal response by governments in terms of putting programs in place — and taking a stronger than expected economy going into the crisis — then creating a coiled spring of pent-up demand because you have temporarily ground the economy to a halt, we could potentially see a quite powerful snapback once we get to the other side of the crisis because of these dynamics," Mr. Booth said.
And different regions will see different rates of recovery, said Paul Gruenwald, global chief economist at S&P Global Ratings in New York. "We are of the view that the labor market and SME sectors are going to be key. What's interesting there is the way that Europeans and Asians are approaching fiscal damage control in a different manner to the Americans."
Mr. Gruenwald highlighted the way that European and Asian governments are "incentivizing firms to keep workers on the payroll and keep businesses intact — effectively subsidizing the connective tissue of the economy."
But the U.S. is not taking that approach. "We're thinking that, when we get the all-clear, the European and Asian approach is better suited to a faster recovery," he said.