Italy was the new Hubei province only a week ago. Now France and Spain are. Germany is next. Then the U.K. Then the U.S.
With hopes now dashed for containment of the COVID-19 coronavirus, Barclays Capital is forecasting a global recession. It will be the first recession since the great financial crisis of 2008-09.
“Developments this week have crushed any remaining hopes of containing COVID-19 to certain regions or to areas within certain regions as new cases of infection accelerate,” says Christian Keller, head of economic research at Barclays in London.
As the epicenter in China is past peak, with more people recovered than have had it overall, Europe is a disaster unfolding. This is increasingly likely in the U.S. as it is now spreading communally from initial cases sparked by foreign travelers.
Restrictions to public life, including quarantines, school and university closures, reduced travel, and major event cancellations all imply a large and negative impact on economic activity in the second quarter for the core economies.
This comes after a likely very large contraction of China’s economic activity in the first quarter, of which Barclays thinks China growth fell 39.8% over the previous quarter. Now, China’s main customers in the EU and United States caught the virus that was first discovered in China back in December. They’re not going to be buying Made in China in large quantities anytime soon.
As COVID-19 passes through all nations, spreading faster in Brazil and even Russia, “a global recession for 2020 seems no longer avoidable,” Keller wrote in a note to clients on Friday.
A global recession, based on Barclays numbers anyway, isn’t necessary a zero growth story to end the year. They still have world GDP growing at 1.8%. Then it rises to 3.7% in 2021 as people come to terms with the new coronavirus and learn to live with it.
China GDP will be just 3.2%, its lowest ever, if Barclays is correct.
Markets are adjusting to this new reality, pricing deeper recessions and continuing to flee into cash.
2020: Prognosis Negative
The U.S. economy will likely face a bear stock market and at least two quarters of zero to negative growth. But the year will end up. Barclays is forecasting 0.8% GDP growth this year in the U.S.
The worst hit for 2020 will be:
Mexico: -2%
Japan: -1.6%
Singapore: -0.9%
Eurozone: -0.5%
U.K.: -0.2%
The root cause of this ongoing financial and economic crisis is different from past bear markets, which typically had a financial origin.
Reference: Forbes
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