CAPITALIST CRISIS
Coronavirus plunges world economy into brutal recession
Measures imposed to slow the spread of the coronavirus are pushing the world economy into a recession deeper and more painful than initially expected, even if a rebound is still on the cards for next year.
A week before the International Monetary Fund updates its forecasts for the global economy that will take into account the initial damage incurred since the coronavirus emerged in China at the start of the year, the first sets of data are coming in.
France's central bank estimated Wednesday that the country's economy contracted by around six percent in the first three months of 2020, its worst quarterly performance since World War II.
Meanwhile, the leading economic institutes in Germany expect Europe's top economy to contract by nearly 10 percent in the second quarter.
That would be twice as deep as the contraction Germany suffered in 2009 as the global financial crisis hit the continent, and it would constitute the country's worst performance since the institutes began keeping records in 1970.
"During the first two quarters of the year, the economies of Western countries are collapsing," said Philippe Waechter, economist at Ostrum Asset Management.
If the United States is somewhat behind Europe in terms of shutting down businesses to stem the spread of the coronavirus and first-quarter figures will not be impacted, the effect is likely to make itself felt in the second quarter.
- 'Deepest recession of our lives' -
"It's impossible to imagine that the United States could escape the deep recession being suffered elsewhere," said Waechter.
Both California, which has the world's fifth-largest economy ahead of Britain and France, and the US financial capital New York City are both under confinement measures.
Meanwhile, the World Trade Organization said Wednesday it expects world trade to tumble by between 13 and 32 percent this year.
WTO chief Roberto Azevedo warned the world is facing the "deepest economic recession or downturn of our lives."
Forecasts made just a few weeks ago have become outdated.
In mid-March, Moody's ratings agency said it expected moderate recessions of around two percent this year in the United States and 2.2 percent for the eurozone.
Since then, most of Europe has followed Italy and Spain into lockdown, as has much of the United States, slamming the brakes on both production and consumption.
The chief economist of the Organisation for Economic Co-operation and Development (OECD), Laurence Boone, told France Inter radio Wednesday that every month in lockdown would lead to 2.0-percent decline in annual gross domestic product.
"We have production levels dropping on the order of 25 to 30 percent across all of the countries" in the OECD club of industrialised nations, she said.
- A rebound in 2021? -
With none of world's regions set to escape unscathed, the recession could well last longer than some have so far expected.
"In 2021, we can hope for growth similar to that of the past, but there is a fair amount of uncertainty," said Waechter.
One of the big question marks is whether a vaccine can be developed and marketed quickly to avoid another wave of infections, and whether factories will be able to restart production quickly.
"Considering how slow China's recovery is becoming, it is hard to argue that the US and European economies will recover quickly," said Edward Moya, analyst at online forex trading firm OANDA.
"If China is only halfway back up and running, patience will be needed to see how the rest of the world will turn out," he wrote in a note to investors.
The OECD's Boone said forecasting has become very difficult.
"We could partially exit the lockdown, but if the population has little immunity and the rest of the world is the same, we could face a new wave of virus infections and a new period of lockdowns," she said.
Global trade will plunge by up to a third in
2020: WTO
Global trade could plummet by a third this year due to the coronavirus pandemic, the World Trade Organization said Wednesday, warning the deepest recession "of our lifetimes" could be on the horizon.
"COVID-19 has completely upended the global economy and with it international trade," WTO chief Roberto Azevedo told reporters in a virtual briefing from Geneva.
The global trade body was projecting that "trade in 2020 will fall steeply in every region of the world, and basically across all sectors of the economy," he said.
The WTO acknowledged that there was huge uncertainty around how the economic crisis around the pandemic, which has infected more than 1.4 million people globally and killed nearly 83,000, would unfold.
Stressing that the situation was first and foremost a health crisis, Azevedo warned that "the unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself."
WTO presented two scenarios that it deemed "plausible", depending on how quickly the pandemic was conquered and the measures governments put in place to dampen the blow.
"In an optimistic scenario, our economists see the volume of global merchandise trade falling by 13 percent this year compared to 2019," Azevedo said.
That outlook points to a sharp drop in trade followed by a recovery starting in the second half of 2020.
- 32 percent drop, or more -
"If the pandemic is brought under control relatively soon, and the right policies are in place, trade and output could rebound nearly to their pre-pandemic trajectory as early as 2021, regardless of how steep the initial fall is," Azevedo said.
But he warned that "if the pandemic is not brought under control and governments fail to implement and coordinate effective policy responses, the decline could be 32 percent, or even more."
North America and Asia would be hardest-hit and could see their exports plunge by 40 and 36 percent respectively, while Europe and South America could see declines of more than 30 percent, the WTO said.
"These numbers are ugly," Azevedo acknowledged. "There is no way around that."
The downturn "may well be the deepest economic recession or downturn of our lifetimes", he said, calling on governments to "make the most of all potential drivers of sustainable growth to reverse this situation."
In its main annual forecast, the 164-member WTO pointed out that trade had already been slowing in 2019, before the emergence of the novel coronavirus.
Trade tensions, uncertainty and slowing economic growth weighed on global merchandise trade, which registered a slight decline of 0.1 percent in 2019 after rising 2.9 percent a year earlier.
The dollar value of world merchandise exports fell by three percent to $18.89 trillion, the WTO said.
World commercial services trade fared better last year, with exports in dollar terms rising by two percent to $6.03 trillion, but the expansion was far slower than in 2018, when services trade increased by nine percent, said the WTO.
- Worse that financial crisis -
However, the situation has taken a dramatic turn since COVID-19 first emerged in China late last year.
The WTO said that while the global shock might invite comparisons to the financial crisis of 2008-2009, the situation now was worse.
Governments around the world have taken radical measures to try to halt the spread of the deadly virus, including closing schools and public spaces and asking more than half of humanity to remain at home.
"Restrictions on movement and social distancing to slow the spread of the disease mean that labour supply, transport and travel are today directly affected in ways they were not during the financial crisis," it said.
"Whole sectors of national economies have been shut down, including hotels, restaurants, non-essential retail trade, tourism and significant shares of manufacturing."
Developments remained very uncertain, but WTO said countries could ensure a faster and stronger rebound through international cooperation.
"A turn towards protectionism would introduce new shocks on top of those we are currently enduring," Azevedo said.
"Keeping markets open to international trade and investment would help economies recover more quickly," he said, insisting that "we will see a much faster recovery than if each country goes it alone."
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