An uncertain recovery for the global economy

The extent of the impact of the pandemic on the global economy became apparent over the summer, following the release of Q2 data. With lockdowns causing acute economic disruption, a series of countries reported record falls in output. Despite this, and although uncertainties are still inflicting economic stress, various economists expect the sharpest declines have passed, but the advancement of recovery is ambiguous.

The UK economy was hit particularly hard; preliminary Q2 gross domestic product (GDP) statistics highlight a 20.4% reduction in output in Q2, the country’s largest ever quarterly decline. Meanwhile, Q2 output across the Eurozone contracted 12.1%, with Spain suffering the largest decline, its economy shrinking 18.5%. Estimates for the US suggest the economy shrank at an annualised rate of 32.9% in Q2, the most severe decline since government records began over 70 years ago.

A recovery of sorts?

On home shores, the Office for National Statistics said the decline was concentrated in April at the height of lockdown, which stands to reason. As restrictions eased, the UK economy started to bounce back in June. In China, the world’s second-largest economy, recovery seems underway. The economy returned to growth in Q2, growing 3.2%. This follows a historic 6.8% Q1 slump, China’s first contraction since at least 1992 when records began.

In a downgrade from previous projections, the International Monetary Fund (IMF) predict the global economy will shrink 4.9% in 2020. This amendment considers the prospect of social distancing restrictions applying for a longer period and the impact on consumer spending as a result. Voluntary social distancing measures adopted by people who are wary of exposing themselves to the risk of infection is also expected to impact.

“There are important downside risks”

It seems inevitable at the moment that these will remain uncertain times. Next year, the IMF forecast the global economy will expand by 5.4%; but they emphasise there is a higher-than-usual degree of uncertainty encircling their predictions. Gita Gopinath, IMF Chief Economist added: “The strength of this recovery is highly uncertain. On the one hand, you could get positive news, you could have better news on vaccines and on treatments and greater policy support, and that can trigger a faster recovery. But on the other hand, there are important downside risks, too, which is that the virus could come back up. You could have financial tightening that could lead to debt distress. So, there are both upsides and downsides.”

Rest assured, we remain on hand to navigate any uncertainty.

 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.