- Deutsche Bank sees the world plunging into a coronavirus-fuelled recession in the first half of 2020 before a soaring recovery throughout the rest of the year.
- Quarterly GDP declines seen in the first and second quarters will “substantially exceed anything previously recorded going back to at least World War II,” the bank’s economists wrote.
- China will see its economy shrink by 31.7% in the first quarter before a sharp rebound in the following three-month period, the bank wrote. The US economy will slump by 12.9% in the second quarter.
- The bank cited the virus’ rapid spread in Europe and the US and the faster-than-expected drop in economic activity for its latest forecast.
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Deutsche Bank is the latest financial institution to forecast a global recession in 2020, and its second-quarter projections call for the biggest economic contractions in nearly 80 years.
Plummeting first-quarter demand in China will initiate the global slowdown before a similar hit is seen in the eurozone and the US, the team of economists led by Peter Hooper wrote Wednesday. The coronavirus has already dragged major economies close to complete halts as quarantine orders and business shutdowns block consumer spending and leave companies rushing to shore up cash.
China will see gross domestic product slump by 31.7% in the first quarter before rocketing to 34% in the following three-month period, the economists said. The US economy will grow by just 0.6% in the first quarter before slipping into a 12.9% contraction. The anticipated declines “substantially exceed anything previously recorded going back to at least World War II,” the bank added.
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Deutsche Bank’s recession scenario depicts a sharp V-shaped dip in economic growth as nations quickly rebound through the second half of 2020. Yet the difficulty in containing the coronavirus makes such estimates difficult, as increased contagion could yield a far longer hit to major economies, the bank said.
“We cannot stress enough the degree of uncertainty surrounding these projections,” the economists wrote. “These are truly unprecedented events with no adequate historical example with which to precisely anchor our forecast.”
The firm attributed its update to the virus’ rapid spread throughout the US and Europe and a “much-sharper-than-expected drop” in China’s economic activity in January and February. Previous estimates showed China’s first-quarter GDP falling by just 5.9%, whereas updated figures see China driving the majority of the world’s economic slump in the same period. The bank also cited “severe stress” in global money and credit markets for the sharp declines.
While Deutsche Bank’s update sees GDP plummeting at degrees not seen in modern history, signs of effective virus containment in China leave the firm hopeful for a swift 2020 recovery. The economists’ new baseline reveals its sharpest V-shaped plunge yet but also lifts third-quarter global growth to roughly 10%. The stronger-than-usual GDP expansion could last well into 2021, according to the bank.
The recession call arrived one day after Morgan Stanley projected a global recession arriving in the second quarter. The bank’s economists don’t expect as steep a GDP hit as Deutsche Bank laid out in its Wednesday note. Morgan Stanley pegs the eurozone economies as facing the biggest hit to economic growth, adding that prolonged disruption in financial markets could push an economic downturn into the third quarter.
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