Coronavirus will cause unprecedented shock to the global economy – Moody’s

The G-20 economies will experience an unprecedented shock in the first half of this year and will contract in 2020 as a whole, before picking up in 2021, according to ratings agency Moody’s.

Moody’s has revised its growth forecasts downward for 2020 as the rising economic costs of the coronavirus shock and the policy responses to combat the downturn are becoming clearer. Moody’s now expects G-20 real GDP to contract by 0.5 percent in 2020, followed by a pickup to 3.2 percent growth in 2021. In November last year, before the emergence of the coronavirus, Moody’s was expecting G-20 economies to grow by 2.6 percent in 2020.

Fiscal and monetary authorities are increasingly stepping up the level of support to their economies to avert permanent damage to households and businesses, Moody’s said.

“Globally, authorities are adopting important policy measures such as income guarantees and regulatory forbearance in an effort to reduce the risk of simultaneous defaults weakening financial stability,” it said. “We expect policy measures to continue to grow and deepen, as the consequences of the shock in terms of depth and duration become clearer. Nevertheless, downside risks to growth remain sizable.”

Moody’s anticipates that business activity will fall sharply across advanced economies in the first half of 2020. It projects cumulative contraction over the first and second quarters of 2020 of 5.4 percent in Germany (Aaa stable), 4.5 percent in Italy (Baa3 stable), 4.3 percent in the US (Aaa stable), 3.9 percent in the UK (Aa2 negative) and 3.5 percent in France (Aa2 stable).

“Although supportive fiscal and monetary policy measures will likely aid recoveries with above-trend growth in the subsequent quarters and in 2021, the output loss in the second quarter is unlikely to be recovered,” said Moody’s.

Moody’s now forecasts China real GDP growth of 3.3 percent in 2020, followed by 6.0 percent growth in 2021. Slow improvement in consumer demand will temper the pace of China's (A1 stable) recovery.

“In other emerging market countries, a sharp reduction in GDP in the second quarter is also inevitable especially where strict containment measures have been imposed,” said Moody’s. “But the recovery in emerging markets will likely be relatively more muted than in advanced economies. A general lack of social safety nets, a weaker ability to provide adequate support to businesses and households, and inherent weaknesses in many of the major emerging market countries will amplify the impact of the shock.”