State of the economy: April 2020

Global Summary

• The spread of COVID-19 into a global pandemic has significantly impacted global economic activity in 2020 as economies have moved from being impacted by international supply chain disruptions to implementing their own domestic restrictions on economic activity to contain the health impacts.

Markets remain highly sensitive to COVID-19 risks.

• The most visible initial impacts of COVID-19 risks to the economic outlook were in global financial markets.
• Equity markets have fallen significantly since January, and have traded at their lowest levels since the financial crisis.
• Govt. bond yields have fallen, reflecting increased demand for lower risk assets and monetary loosening by Central Banks.
• The oil price fell to an 18 year low at end March (c.$21 p.b) reflecting the weaker demand outlook. Steps to agree reduced oil output has supported a strengthening in price to c.$31 p.b.

Global business activity collapsed in March.

• The Global PMI business survey showed a significant contraction in business activity in March as COVID-19 spread across continents and rapidly through Europe and the US.
• The fall in output was most notable in the services sector, while manufacturing output contracted to a lesser degree.
• Business investment is expected to be significantly impacted with the UNCTAD estimating global FDI flows could fall by -30% to -40% during 2020/21.

Global economic outlook points to significant contractions.

• The OECD estimate business closures (containment measures) could lead to a 15% fall in the level of output across advanced and major emerging market economies.
• The IMF projects global output to fall by 3.0% in 2020 before growing 5.8% in 2021 (assuming the pandemic fades in the second half of 2020, allowing the lifting of restrictions).
• The IMF estimate the cumulative Global GDP loss as a result of COVID-19 to be around $9 trillion over 2020-21.