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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