The IMF’s latest World Economic Outlook projects a 3% contraction in the global economy this year. This is an unprecedented decline and a 6.3pp downgrade from the January forecasts. A rebound to 5.8% growth is expected in 2021, assuming the policy support in place proves effective, but this still leaves a huge cumulative loss in global output.
We drill down into quarterly consensus forecasts for the major economies where, like the IMF, forecasters have been rapidly revising GDP growth projections lower. Over the past month forecast downgrades have accelerated as the scale of the coronavirus pandemic rapidly became evident (Table 1).
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The IMF’s latest World Economic Outlook projects a 3% contraction in the global economy this year. This is an unprecedented decline and a 6.3pp downgrade from the January forecasts. A rebound to 5.8% growth is expected in 2021, assuming the policy support in place proves effective, but this still leaves a huge cumulative loss in global output.
We drill down into quarterly consensus forecasts for the major economies where, like the IMF, forecasters have been rapidly revising GDP growth projections lower. Over the past month forecast downgrades have accelerated as the scale of the coronavirus pandemic rapidly became evident (Table 1).
The US, UK, Japan and the Euroarea are all expected to record deep recessions this year. Consensus forecasts see the EU experiencing the most pronounced slump of the four in the second quarter (Table 2). Economy IS expected to bounce back strongly in Q3, despite that Euroarea is expected to record the most severe annual decline in output. The IMF’s annual forecasts show a similar story with their 7.5% projected decline in Euroarea GDP, the worst out of the four advanced economies we consider here. Japan is expected to be the least impacted, but the starting point was worse than elsewhere with a huge Q4 contraction due to the VAT hike and typhoons in 2019.
We also look at consensus projections for China where economists predict an unprecedented slowdown but not outright recession. The historic decline of -9.8% QoQ and -6.8% YoY already reported for Q1 GDP was below the QoQ consensus and highlights the huge damage done by the lockdown. We detail the consensus estimates below for all five countries in what is expected to be the worst economic performance in many decades below.
Table 1: GDP Forecasts Revised Sharply Lower in April
Source: Reuters, Macro Hive
Table 2: Only a Modest Recovery is Expected in H2
Source: Reuters, Macro Hive
Consensus GDP Tracker: US
GDP data due at the end of this month are expected to show the economy contract modestly in the first quarter with the COVID-19 disruption starting in March. A deep slump is expected in Q2 with consensus at -5.5% QoQ, (blue line in Chart 1).
The panel of 53 forecasters predicts the economy will start to recover from Q3 onwards leaving an annual decline of -3.1% this year(Table 1). This is more optimistic than the IMF’s -5.9% forecast, but in line with the Bloomberg consensus as of mid’ April -3.2%.
Looking at most bearish contributors, Uni credit projects a -10.8% contraction in 2020 with a strong bounce of 11.8% in 2021. Nomura forecasts a roughly similar decline this year but a much shallower recovery in 2021 with growth of just 3.2% indicating a permenant impairment due to loss of activity. (Appendix 1).The consensus for 2021 US growth stands at 3.5%.
Chart 1: Consensus Sees a Deep Slump in US Q2 GDP
Source: Reuters, Macro Hive
Note: forecasts as of April 3
Consensus GDP Tracker: Euroarea
Like the US, an H1 recession is projected for the Euroarea (Chart 2). The projected Q2 decline is deeper than the US at -10.2%,with a bigger bounce in Q3. But unlike for the US, the Euroarea growth is expected to slow in Q4.
Out of the forecasters surveyed by Reuters, BMO and Uni Credit are the most pessimistic for the next 2 quarters.
The annual outlook for the Euroarea is dire with the consensus of 63 economist at -5% for 2020. The 2021 recovery is expected to see growth at 3.9%. Uni credit and KBC are the most bearish and Pantheon expects an even slower recovery in 2021 compared to Uni credit. (Appendix 2).
Chart 2: The Euroarea is expected to record an even deeper Q2 Decline Than the US
Source: Reuters, Macro Hive
Note: forecasts as of April 3
Consensus GDP Tracker: UK
The expected UK recession is of similar magnitude to the Euroarea (Chart 3). Consensus of 23 contributors sees the Q2 nadir at -10% QoQ with Unicredit once again the most pessimistic at -20.0%. (Appendix 3).
A projected annual decline of -4.2% (Table 1) for this year reflects a very moderate H2 recovery. The IMF is even more pessimistic with a forecast contraction of -6.5%. And the rebound to 3.7% GDP growth in 2021 is fairly shallow.
Chart 3: UK Forecast are Broadly in Line With the Euroarea
Source: Reuters, Macro Hive
Note: forecasts as of April 3
Consensus GDP Tracker: Japan
Japan is expected to be the least impacted of our four advanced economies under consideration. (Table1 and 2). The forecasted H1 recession (Chart 4) is expected to be shallow with the consensus for Q2 GDP at -1.4% QoQ. But this does not capture the significant contraction in Q4 2019 due to the October VAT hike and typhoons during the quarter.
Consensus of 30 contributors has the annual GDP decline at just 2.0% this year but this follows an expansion of only 0.7% in 2019, significantly slower than growth in other major economies. Again the IMF is much more pessimistic than the consensus with this year’s contraction projected at -5.2%. Consensus sees 2021 rebounding to a still-low 1.7%. (Appendix 4).
Chart 4: Japan GDP Least Impacted in the G4
Source: Reuters, Macro Hive
Note: forecasts as of April 7
Consensus GDP Tracker China
The historic decline reported for China’s Q1 GDP growth highlights the depth of the economic damage from the lockdown. At -6.8% YoY (and -9.8% QoQ) the quarterly contraction was worse than the QoQ consensus in the Reuters sample.
Despite the huge contraction during the first quarter, China is not expected to record a technical recession. Consensus sees Q2 GDP growth back in positive territory around 3.1% with a continued pickup through H2. (Chart 5).
Of the 25 forecasters only Nomura, Julius Baer and Lianxun securities expect a technical recession in H1. Annual GDP growth is expected at 2.3% in 2020, accelerating to 7.4% in 2021. Even the most pessimistic forecaster (Capital Economics) expects a strong bounce in 2021.
Chart 5: China’s Reported Q1 GDP was Worse than Consensus
Source: Reuters, Macro Hive
Note: forecasts as of April 14
Appendix 1: US Forecasts by Contributor
Source: Reuters, Macro Hive
Source: Reuters, Macro Hive
Appendix 2: Euroarea Forecasts by Contributor
Source: Reuters, Macro Hive
Source: Reuters, Macro Hive
Appendix 3: UK Forecasts by Contributor
Source: Reuters, Macro Hive
Source: Reuters, Macro Hive
Appendix 4: Japan Forecasts by Contributor
Source: Reuters, Macro Hive
Source: Reuters, Macro Hive
Appendix 5: China Forecast by Contributor
Source: Reuters, Macro Hive
Source: Reuters, Macro Hive
Manan is a macro researcher with 8 years of experience on the sell-side including Nomura & J.P Morgan. At Nomura, he specialised in scenario analysis for G10 and major EM economies.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)