World Economic Prospects Monthly

Abstract

Overview: Green shoots emerge as lockdowns ease ▀ Latest news confirms that the global economy suffered a dire April as peak lockdown was reached. There are growing signs that activity in some parts of the world may have begun to recover in May as lockdown restrictions started to ease but, while we expect a near‐term rebound in activity, we now forecast that world GDP will shrink by just over 5% this year. ▀ The grim hard data for April confirm that the pace of contraction in the global economy worsened markedly in early‐Q2. US and German industrial production plunged by around 11% and 21% respectively from March – while economies such as Japan, Sweden and South Korea, which did not implement national lockdowns, also recorded steep monthly falls. ▀ A rebound in the business and consumer surveys in May, along with an improvement in some alternative activity indicators, points to an improvement in conditions last month. Google mobility trends suggest that, across the major economies, individuals are now spending more time away from residential areas compared with during the peak lockdown period. Meanwhile, in Germany and Australia restaurant bookings have picked up sharply as lockdown restrictions have been eased. ▀ On balance, recent events are broadly consistent with our last global growth forecast. We have lowered our Q2 GDP estimate, but this is broadly offset by an upward revision to Q3. And the prospects for the US and China are looking a little better. ▀ More generally, the COVID‐19 outbreak will leave scars and undermine the recovery further ahead. Firms are likely to prioritise cost‐cutting and debt repayments over investment. Weaker employment and wage growth and more precautionary saving look set to curb household spending too. Although the 6.5% rise in global GDP that we forecast for next year sounds impressive, activity in 2021–25 is likely to be weaker than we had expected a few months ago as a result of such scarring.