The financial impact of the coronavirus is “crushing global GDP growth” according to Fitch Ratings’ most recent economic forecast, which has been cut nearly in half from what it expected just a few months ago.
In its latest quarterly Global Economic Outlook, Fitch slashed its baseline global growth forecast for 2020 to 1.3% from its December forecast of 2.5%, which would leave global gross domestic product (GDP) for the year $850 billion lower than previously expected. And the firm says this could very easily fall even further if more pervasive lockdown measures are implemented throughout all the G7 economies.
“The level of world GDP is falling,” Brian Coulton, chief economist at Fitch Ratings, said in a statement. “For all intents and purposes we are in global recession territory.”
In its report, Fitch said the shock to the Chinese economy has been “very severe” and its GDP is likely to fall by more than 5% during the first quarter alone.
“Falling GDP in China is virtually unprecedented and, in the near term at least, these numbers are worse than most previous hypothetical ‘hard-landing’ scenarios,” the report said. And although the sharply falling number of new COVID-19 cases in China portends a strong economic recovery during the second quarter, Fitch says the delayed impact of supply-chain disruptions, and lower Chinese demand on the rest of the world, “will continue to be felt profoundly for some time,” particularly in the eurozone and the rest of Asia.
Additionally, Fitch said the rapid outbreak of the virus outside China has led to sharp declines in travel and tourism and the cancellation of business trips and vacations worldwide. It also pointed out that other large advanced countries have enacted large-scale lockdowns similar to those seen in China. It said these countries are likely to see sharp declines in GDP in the coming months.
“The interruptions to economic activity seen in China—and now in Italy—are on a scale and speed rarely seen other than during periods of military conflict, natural disasters, or financial crises,” the report said. “The risk is that we shortly see these abrupt interruptions happening simultaneously across all major economies as the global pandemic spreads.”
Despite an expected recovery in the second quarter in China, Fitch’s forecasts that growth in the country will fall to 3.7% for the year, and it expects Italian and Spanish GDP to drop 2% and 1%, respectively. It also forecasts US GDP growth to be just 1% in 2020 compared with a pre-pandemic outlook of 2%.
However, these forecasts were finalized prior to announcements that full-scale lockdowns would take place in other major countries. Now that lockdowns have occurred in France, the United Kingdom, and several US states, it’s likely the firm will eventually downgrade those figures even further. Fitch said that because of the speed at which the crisis is evolving, it will update its global economic forecasts with a much higher frequency over the coming months than its usual quarterly publication cycle.
Fitch said escalating lockdown responses across the major economies would mean that the chances of an even weaker GDP outcome are very likely. It said a downside variant to its baseline forecast shows GDP in Europe down by more than 1.5%, US GDP down by nearly 1%, and Chinese growth falling to just over 2%.
“The uncertainties here are huge,” Coulton said, “and we are really only at the beginning of the process of trying to understand the full impact of the crisis on the world economy.”