The Covid-19 pandemic has plunged the world into economic crisis, with the World Bank projecting a 5.2% decline in global gross domestic profit (GDP) in 2020.1 This would be the deepest recession since World War Two, and nearly three times as bad as the one caused by the global financial crisis of 2008-2009.1
However, the bank’s outlook for different regions varies. It expects GDP to drop more significantly in advanced economies such as the US, UK and eurozone – with these forecast to fall by an average of 7% this year.1 Emerging markets and developing countries, on the other hand, are forecast to fall by around 2.5% on average.
Governments around the world have implemented lockdowns to stem the spread of coronavirus, with this unprecedented action having far-reaching consequences for their economies. Sectors such as hospitality, retail, transport and construction have been particularly badly hit, as people have been forced to change their working practices and minimise social contact. This, in turn, has led to job cuts and a reduction in spending across the global economy.
According to the International Labour Organization (ILO), over 93% of workers live in countries with some form of workplace closure in place.4 As a result, 5.4% of global working hours were lost in the first quarter (Q1) of 2020, rising to an estimated 14.0% in the second.4 This was equivalent to 155 million full-time jobs in the first quarter and as many as 400 million in Q2.4
The initial effect on spending can be seen in indices pricing. For example, the S&P 500, often seen as a benchmark for global economic health – suffered one of its worst falls on record over the first 100 days of the crisis, as investors priced in a reduction in both consumer spending and international trade.
Day zero on the chart is the final high of the S&P 500 at market close before the bear market began. Data is accurate as of 22 June 2020
The severity of the S&P’s fall surpassed Black Monday, the dot-com crash and the Great Recession in percentage terms. Similar effects were seen across other global indices including the FTSE 100, Germany 30 and HS50 as illustrated below.
All indices set at 100 on 1 January 2020 for ease of comparison. Figures represent price returns and do not include dividend payments.
The World Bank forecasts that 92.9% of countries will fall into recession this year, with the figure dropping back below 20% in 2021.1 However, any recovery will depend on how quickly governments can ease lockdown restrictions and increase spending, which may prove difficult if there is a second wave of coronavirus.
Illustrative of this, China’s CSI 300 Index has recovered relatively quickly as its government has moved to ease lockdown measures and increased spending to stimulate the economy. By contrast, the UK’s FTSE 100, Australia’s ASX200 and Singapore’s Straits Times Index have yet to recover fully – with lockdowns extended and exports yet to return to pre-crisis levels.
Similar levels of volatility have been seen in the prices of other financial markets including shares, forex pairs, commodities and cryptocurrencies. Discover how you could speculate on these price movements with CFDs or spread bets.
With so much uncertainty surrounding the global economy, IG’s Victoria Scholar has been talking to a range of economists about the outlook for the global economy and individual countries.
- Daniel Lacalle on the global economy
- Steve Hanke on the global economy
- Gerard Lyons on the UK’s economy
- Holger Schmieding on the eurozone’s economy
- Andrés Velasco on Latin America’s econom