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No V-shaped recovery in sight after the large-scale shutdown of economic activity and the virus posing a risk to globalisation.
The global economy and world trade are being battered by the widespread and comprehensive measures to limit the spread of Covid-19. Even though some countries have started easing their lockdown measures such as in China there has been no swift uptick in economic activity, leaving no hope of a swift global economic recovery.
On 8 April, the World Trade Organization set out two scenarios and both predict trade dropping in every region and across all sectors. In its most optimistic view, global trade will fall by 13% in 2020, whereas its pessimistic outlook sees trade falling by 32% from 2019 levels, with a recovery in 2021 that will not return volumes to pre-pandemic levels. BIMCO believes the actual drop will be somewhere between these two figures, depending on how long it takes for the pandemic to be brought under control, and how governments around the world are able to coordinate and implement effective stimulus measures to get their economies back up and running.
The International Monetary Fund (IMF) has turned its 2020 growth forecast on its head, from + 3.3% growth before the outbreak, to a 3% contraction, although this prediction remains shrouded in uncertainty as the duration of the crisis and the speed at which nations can reverse lockdown measures remains unclear. This sudden and drastic contraction far exceeds that of the 2008 financial crisis; the Great Depression of the 1930s, unfortunately, looks like a closer comparison.
In its April World Economic Outlook, the IMF forecasts the economy will normalise in 2021 with growth of 5.8%, bringing the global economy to an index level of 102.6 from 2019 levels. This forecast assumes that most containment efforts will be removed over the course of the second half of 2020.
Europe The crisis, which took hold in Europe in March, has seen countries responding in different ways, although most have been on a scale ranging from a full lockdown and curfews to more restrained social distancing measures. Common to all countries, however, is that their economies have taken a massive hit.
The largest economies in Europe are among those worst affected. Germany, the UK, France and Italy have all posted negative Q1 GDP growth: -2.2%, -2.0%, -5.8% and -4.7%, respectively. The European Union as a whole saw its economy shrink by 3.5% in the first quarter of 2020 compared with Q4 2019, although when looking year-on-year, the economy was 0.2% larger than in Q1 2019. The impact on shipping will be lower demand across all sectors.
These Q1 GDP contractions are merely a warning of the damage the virus is likely to cause in the second quarter of the year. Most countries only implemented containment measures in March, and the continued confinement in April as well as the slow and winding road out of the situation means the economic damage will be greater in the second quarter than in the first, inevitably leading to slower growth. The IMF forecasts a 7.5% contraction in the eurozones economy for the full year. Even with a return to growth in 2021 of 4.7%, would still leave the economy significantly smaller than in 2019.
The service sector, which outperformed manufacturing last year, has been even harder hit by the global health crisis. The eurozones service Purchasing Managers Index (PMI) fell to its lowest reading on record in April at just 12 points (the threshold of 50 indicates no change from the previous month, with anything under 50 representing a contraction).
Manufacturing on the continent has also been dealt a heavy blow, with countries lining up to post record low readings of their manufacturing PMIs. The eurozone saw a massive contraction. Its index fell from 44.5 to 33.4 in March, as factories closed and demand plummeted, with the new export orders sub-index falling to record lows. In the five biggest nations in Europe, the indexes fell to between 30.8 and 34.5 points. Despite government measures to avoid unemployment, manufacturers reported cutting staffing levels at the fastest rate since April 2009.