THE WORLD ECONOMY: Global outlook overview

Abstract

The short-term global economic outlook has changed in an unprecedented manner from that forecast just three months ago as a result of the coronavirus pandemic and the control measures taken to combat its spread. The prospective fall in global GDP in the first half of this year could be five times larger than that experienced in the financial crisis a decade ago. In terms of size of the drop in global GDP, the closest recent parallel is with the Great Depression, when global activity suffered a deeper and more protracted fall. To say that the economic outlook is uncertain is an understatement. The likely duration of the current economic disruption is extraordinarily difficult to foresee because it is an epidemiological policy issue dealing with a totally new virus rather than an economic one. Issues such as the possibility of the virus re-appearing after the lockdowns are lifted and the development of a vaccine add to the uncertainty. In addition, the news on the effect of the pandemic changes every day and the availability of economic data lags behind the actual economic events. As a consequence, we have based our central case scenario on the assumption that countries experiencing economic lockdowns in response to the virus see these holding fully for around three months. Thereafter we assume there are phased returns to preshutdown business operations over a further six months and that the virus does not return once lockdowns end. The worst economic effects are in the first three quarters of this year, with the second quarter the nadir