The impact of coronavirus on the outlook for the global economy

Page 1

The impact of coronavirus on the outlook for the global economy Innes McFee Managing Director, Macro and Investor Services imcfee@oxfordeconomics.com Ben May Director, Global Macro Research bmay@oxfordeconomics.com


Outline of presentation • How big will the hit to GDP be in H1?

• When will we see a revival, & how strong will it be? • The downside scenario

1


Lockdown took a massive toll on Chinese activity

2


China is returning to normal, but only slowly China: Coal consumption of 6 power producers Thousand tonnes

2017

900

2018

2019

2020

Chinese New Year (CNY)

800 700 600 500

400 300 -40

-30

-20

-10

0

Source : Oxford Economics/WIND 3

10

20

30

40 50 60 Days after CNY


Major contraction in Q1 followed by a big Q2 bounce China GDP % year 20

March forecast February forecast

15

January forecast (pre coronavirus) 10 5

0 -5 -10 2010

2012

2014

2016

Source : Oxford Economics/Haver Analytics 4

2018

2020

2022


Hit to global supply chains has been significant

5


Surveys already in recession territory… World: GDP & PMI Index

Global composite PMI (Adv two months, LHS) % y/y 6 Global GDP (RHS)

65

5

60

4 55

3

50 45

2 SARS outbreak / Iraq war

1 0

40

35 30 2001

September 11 attacks

-1 -2 -3

2004

2007

2010

2013

Source : Oxford Economics/Haver Analytics/Markit 6

2016

2019


...even before the shock ceased to be China-specific Change in PMI vs Distance from China Change in Man. PMI (Jan to Feb) 4 PMI above 50 in February PMI below 50 in February

Netherlands

3

Indonesia

2

Germany Greece

U.K.

Spain

Canada Turkey

1 Russia

0

Thailand

Czech Rep. Poland

Malaysia

Italy

India

-1 South Korea

-2

Brazil

Mexico

U.S. (ISM)

Japan

France

U.S. (PMI)

Taiwan

-3 0

5000

Source : Oxford Economics/Bloomberg 7

10000

15000 Distance From China (km)


But it is no longer just a China problem Global: Coronavirus cases Cases per million 450 Japan, South Korea, Hong Kong, Macau, Vietnam, Thailand, Singapore, Malaysia 400 Germany, France, Italy, Spain, UK 350 China excluding Hubei 300 250 200 150 100 50 0 21 Jan

04 Feb

18 Feb

03 Mar

Source : Oxford Economics/Haver Analytics/WHO 8

17 Mar


But disruption & lockdowns have now gone global Global lockdowns China Italy Spain France Germany US (specific states) UK India Australia Other

16.4%

Past

41.7%

Present

0

20

40

Source : Oxford Economics/Haver Analytics 9

60 % of global GDP

80


Large share of consumer spending is discretionary or social

10


Bigger Q1 quarterly fall than in the GFC now expected World: GDP % year Forecast

8

% quarter 3.0 2.5

6

2.0 1.5

4

1.0 2

0.5

0 -2 -4

0.0 -0.5 % quarter (RHS) % year (LHS)

-6 2004 2006 2008 2010 2012 2014 2016 2018 2020 Source : Oxford Economics/Haver Analytics 11

-1.0

-1.5 -2.0


AEs & non-China EM to contract in Q1 and Q2 GDP % q/q sa 3.0

Advanced economies EM excl China

2.0 1.0 0.0 -1.0 -2.0

-3.0 -4.0 2017

2018

2019

Source : Oxford Economics/Haver Analytics 12

2020

2021


With a big near-term hit to employment World GDP & employment % year 8

% year 2.5 2.0

6

1.5

4

1.0 2

0.5 0

0.0 GDP (LHS)

-2

-0.5

Employment (RHS) -4 2001

-1.0 2004

2007

2010

2013

Source : Oxford Economics/Haver Analytics 13

2016

2019

2022


Outline of presentation • How big will the hit to GDP be in H1?

• When will we see a revival, & how strong will it be? • The downside scenario

14


But the bounce back is likely to be strong

15


As attitudes change rapidly

16


Lower inflation to help consumers as normality resumes

17


Policy rates cut & using other crisis-fighting tools Central bank policy rates % 4.5

Advanced economies (LHS) Emerging markets policy rate, excluding China (RHS) Dotted lines show past troughs in annual global GDP growth

4.0 3.5

8.5 8.0

3.0

7.5

2.5

7.0

2.0

6.5

1.5

6.0

1.0

5.5

0.5

5.0

0.0

4.5

-0.5 2006

4.0 2008

2010

2012

2014

Source : Oxford Economics/Haver Analytics 18

9.0

2016

2018

2020


Fiscal policy has responded & more to come Global: Fiscal impulse Ppts of potential GDP 2.5 Advanced Economies

Emerging Markets

World

Forecast

2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 2000

2005

2010

Source : Oxford Economics/Haver Analytics 19

2015

2020


The risk of tighter financial conditions amplifying the shock has grown US: Stocks and corporate credit standards % change, quarter

% balance (+=tightening), inverted

20

-40

15 -20

10 5

0

0

20

-5

-10 Change since mid-February

-15 -20 -25

S&P 500

-30

US corporate credit standards

60 80

-35 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Source : Oxford Economics/Haver Analytics 20

40

100


Current volatility surge eerily similar to 2008

21


Pressure on peripheral sovereigns up, not yet critical

22


Outline of presentation • How big will the hit to GDP be in H1?

• When will we see a revival, & how strong will it be? • The downside scenario

23


Modelling the downside scenario

Using the OE Global Economic Model (GEM) we model three key sources of transmission: • The ex ante shock to discretionary consumption (following the framework of Keogh, Wren-Lewis et al)

• The impact of travel restrictions • Deteriorating financial conditions

24


Scaling the consumption shock

25


Global economy in outright contraction

26


More countries experience severe GDP downgrades

27


Conclusion • The global economy is in recession and the next few months will be extremely challenging • There is a huge degree of uncertainty over key factors in the outlook hence we employ the use of scenarios

• But for those firms and businesses that can weather the storm, the bounce back is likely to strong

28


Weakest global economy since the crisis World GDP growth % change on previous year

29

2017

2018

2019

2020

2021

2022

Real GDP North America United States Canada

2.4 3.2

2.9 2.0

2.3 1.6

-0.2 -1.0

4.1 3.8

1.5 1.9

Europe Eurozone Germany France Italy UK EU27

2.7 2.8 2.4 1.7 1.9 2.7

1.9 1.5 1.7 0.7 1.3 2.0

1.2 0.6 1.3 0.3 1.4 1.4

-2.2 -2.1 -3.1 -3.5 -1.4 -1.8

3.9 4.3 4.4 3.3 3.7 3.8

1.6 0.9 2.6 1.0 2.2 1.9

Asia Japan Emerging Asia, excl Japan China India

2.2 6.2 6.9 6.6

0.3 6.0 6.7 6.8

0.7 5.3 6.1 5.3

-2.0 1.5 1.0 4.4

1.9 7.2 8.4 6.2

1.3 5.6 5.9 6.5

World World 2005 PPPs World trade

3.3 3.8 6.5

3.2 3.5 4.6

2.6 2.8 0.2

0.0 0.5 -1.7

4.4 4.8 5.1

3.0 3.6 4.0

Commodity Prices Brent Oil ($/bl)

54.2

71.1

64.4

38.5

46.0

56.0


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