The global economy will contract by 4.1 percent
The rapid succession of developments relating to the coronavirus is leaving deep scars in the global economy. We are currently forecasting that the global economy will contract by 4.1 percent in 2020, and then grow by 4.3 percent in 2021 (Table 1). This means that the corona crisis will be the deepest economic crisis since the Great Depression in the 1930s. The sharp contraction in mainly Western Europe and Latin America will be offset by more moderate GDP declines in Asia, where stronger underlying growth in China in 2020 and in India in 2021 will go some way to limiting the damage.
Table 1: Economic prospects for the major economies
The deepest economic crisis since the 1930s
For France, Italy, Spain and the United Kingdom we are even forecasting a contraction in gross domestic product (GDP) of more than 10 percent in, mainly due to the long and stringent lockdowns in these countries. Another factor is that the sectors that are the worst hit by the corona crisis, such as tourism, recreation and hospitality, are relatively strongly represented in these countries compared to other eurozone countries.
In the United States, we expect a more limited contraction of 5.7 percent, again followed by a relatively modest recovery in 2021. In the US, this relates to the flexible labor market, which lead to a rapid rise in unemployment which started to come down again recently. April saw the highest post-war unemployment figure of 14.7 percent, although figures for May show that it is coming down again. Corrected for classification errors, unemployment was as much as 19.5 percent. With a fifth of the American working population temporarily out of work, private consumption will be slow to pick up after the hard lockdown period, and these effects will continue to be felt into 2021. This expected weakness in the demand side of the economy will be intensified by the fact that the US economy was already in pretty poor shape before the advent of the corona crisis.
In the Netherlands, we are forecasting a decline in GDP of 5.7 percent, followed by a relatively weak recovery in 2021. The Netherlands has many temporary workers that can be fired easily, but the main problem is the limited recovery in exports expected after the corona crisis.
Reopening the economy is proving difficult
The US and the Netherlands are not the only countries where we expect lower growth in 2021 than we previously forecast. We currently expect the recovery to be more moderate in virtually all countries. Despite the easing of the lockdown in many countries, economic activity is increasing only marginally. On the one hand this is due to lack of demand, as people continue to avoid restaurants, cafés and stores, and also due to economic uncertainty and loss of income. On the other hand, there are limitations in the supply side of the economy as businesses and entrepreneurs are forced to adapt to the six-foot economy. A recent academic study argues that social distancing will be needed until 2022 to prevent a resurgence of the virus.
- COVID-19 is expected to result in contraction of the global economy by 4.1% in 2020
- This means that the corona crisis will be the deepest economic crisis since the Great Depression in the 1930s
- We expect a relatively limited recovery in 2021
- This is because many countries will continue to be bound to a ‘six-foot economy’ for a long time
- Businesses in these countries will not be able to offer as many goods and services as they did previously, and demand will remain low for a long time