The coronavirus pandemic will cause world GDP to shrink by about seven per cent during the first half of the year – roughly double the scale of contraction seen during the global financial crisis.
That is the headline finding from Oxford Economics’ April/May 2020 ‘World Economic Prospects’ report.
The number is shocking but unsurprising given the scale of the coronavirus tragedy. The forecasting and analysis group foresee a sharp resurgence in activity in the second half of the year. But despite this rebound, it is projected that world GDP will shrink by 2.8% in 2020 overall. Next year will see world GDP growth rising to almost 6% in 2021.
Headline figures leave the experts staggered
In the here and now, though, the economic data – and the headlines – continue to be grim wherever you turn. In City AM – a champion of the City – it’s been unprecedented stuff: ‘Global economy to suffer worst year since 1930s’ ‘UK economy could shrink by 35 per cent in second quarter’; and, in the past 24 hours, ‘Dow Jones, S&P 500 and Nasdaq drop as coronavirus ravages global economy’
Experts and commentators are trying to keep track of the numbers. Responding a couple of weeks ago to Office for Budget Responsibility thinking of coronavirus’s possible impact on the public finances, Institute for Fiscal Studies (IFD) director Paul Johnson said: “We must not underestimate just how staggering these figures are. Government borrowing is set to rocket to levels well above those seen during the financial crisis, and debt is set to approach 100% of GDP. These figures are predicated on a short-term economic hit and a swift recovery. Should the lockdown last for longer than three months or the economy fail to bounce back, the picture would worsen further. We will need a complete reappraisal of economic policy once the current economic dislocation is behind us.”
Capital markets in spotlight as lockdown eases
Governments worldwide are working over-time to help minimise the damage and prepare for recovery. New verbs – for example, ‘furlough’ – and new acronyms – for example, ‘CBILS’ (the Coronavirus Business Interruption Loan Scheme) – have rapidly entered business lexicon.
The timing and manner of the UK’s exit from lockdown remains unclear, with public health rightly paramount. Finally this week we have had a shaft of light, with newly-returned-to-work Boris Johnson announcing that the UK is past the coronavirus peak. The PM says he will outline the government’s plan to ease lockdown next week.
There are short-, medium- and long-term priorities and considerations. The Treasury select committee is welcoming evidence to its inquiry into the economic impact of coronavirus until 27 May. How the Government can work towards a sustained recovery is among the discussion points.
Within banking and finance, a paper by New Finance suggests 10 things that capital markets can be part of the solution. Clearly, for all right-thinking businesses, looking after staff must be top priority in these challenging times – a point the think-tank makes.
As New Finance’s paper also says, how the banking and finance industry responds to coronavirus and how it behaves in the next few weeks and months will define its relationship with government and society for the next decade.