Selangor Journal
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Worst catastrophic blow to global economy is over — Moody’s analytics

KUALA LUMPUR, June 5 — The worst of the catastrophic blow to the global economy caused by the Covid-19 pandemic is over, and the severe downturn that has engulfed the global economy since the beginning of the year likely hit bottom in May, said Moody’s Analytics chief economist Mark Zandi.

He said this assumption that there would not be a serious second wave of the virus later this year to disrupt businesses again or spook businesses and consumers back into their bunkers.

It also assumed that global central banks and governments continue to provide the substantial support needed by their economies.

“These are admittedly big assumptions. Even when the pandemic is over, after an effective vaccine or therapy for the virus is widely distributed and adopted, the global economic recovery would not be a straight line forward.

“There has already been too much structural damage to the economy. Given the enormous uncertainties, just how the global economic outlook will play out is difficult to handicap,” he said this in an analysis paper titled “Handicapping the Paths for the Pandemic Economy.”

The paper considers a range of potential scenarios, which is quantified using Moody’s Analytics global macroeconomic model of over 100 countries.

Zandi said the severity and breadth of the Covid-19 global recession are without precedent, and while there is no official arbiter of global downturns, Moody’s Analytics’ judgement was that the peak of the last economic expansion was January 2020, with the nadir of the recession in May 2020.

The four-month downturn is the shortest in the past century, but other than the early-1930s recession that ushered in the decade-long Great Depression, it is the most severe.

Global real gross domestic product (GDP) is expected to decline by at least 10 per cent from peak to trough between the fourth quarter of 2019 and the second quarter of 2020. This is approximately three times the peak-to-trough decline in GDP during the global financial crisis just over a decade ago.

The breadth of the decline in economic activity across the globe is stunning. Based on assessments made by its economists tracking over 100 countries, as of May, every one of those countries was struggling with recession.

In all past global downturns, there was at least one significant part of the world that managed the economic troubles with reasonable grace and was critical to the subsequent recovery as a catalyst for global growth.

China played this role during and after the financial crisis as it used its considerable monetary and fiscal resources to support its large economy and, given its central role in the global supply chain, much of the rest of the world.

No part of the world appears set to play this leading role in this pandemic.

Meanwhile, Zandi said the catalyst for the quick end to the Covid-19 recession is the quick reopening of businesses across the globe.

China and other Asian economies reopened first, beginning in earnest in March, and are now about as open as they would be until there is an effective vaccine.

This is still well short of operating at full tilt. Broad measures of economic activity are back near 90 per cent of pre-Covid-19 levels, with some narrow measures still far from typical.

Asia also continues to grapple with flare-ups of the virus, which has caused some nations – Singapore, Malaysia and Thailand being good examples, to shut down businesses and borders again.

How quickly and fully the global economy recovers on the other side of the business reopenings is uncertain.

“Our baseline scenario, the one most likely is that after this summer’s bounce in growth, the economy will go largely sideways until there is a widely distributed and adopted vaccine or at least a highly effective treatment, which we assume by this time next year,” said Zandi.

Less than a handful of countries would be able to avoid outright declines in real GDP this year, and global real GDP is expected to fall to -4.5 (May baseline) from 2.6 per cent (January baseline), an unprecedented change from the outlook at the start of the year.

While the global economy should enjoy sustained growth on the other side of the pandemic, fuelled by the unleashing of pent-up demand and the need to rebuild depleted inventories and global supply chains, it would take until mid-decade for the economy to return to full employment.

Even then, the global economy would have been diminished by the virus. However, the economic outlook may go in a multitude of other directions depending on how a range of hard-to-handicap forces play out.

“It is heartening to think that the worst of the global economic shock from the Covid-19 crisis is behind us, the recession is over, and the job losses and an increase in unemployment have peaked.

“Though it is hard to imagine the global economy kicking fully back into gear until there is an effective vaccine or therapy that is widely available and adopted, and with continued aggressive support from global central banks and governments, the economy should be able to hold its own until that time,” Moody’s Analytics said.

— Bernama

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