Global Economic Outlook — Spring 2020

Global Economic Outlook — Spring 2020.

As the world grapples with COVID-19 and a grim economic reality, Canadian exporters are facing new risks during these uncertain times. EDC’s updated Global Economic Outlook offers insight on these challenges to help you make better business decisions.

Peter G. Hall.

Vice-President and Chief Economist Export Development Canada.

We’re not through the worst bit…yet.

There’ve never been such immediate, large and extensive revisions to the global growth outlook as have occurred in the past few weeks of April. It feels like we’re free-falling in a bottomless pit.

Initial indicators clearly show the impact that the lockdown is having on economic activity. China was first to release shocking data outturns; now they’re commonplace. Respected forecasters, like the Organisation for Economic Co-operation and Development (OECD), the Institute of International Finance (IIF) and the International Monetary Fund (IMF), have all radically changed their outlooks. Others, frustrated by the pace and severity of change, have elected to cease their forecast operations until further notice.

EDC Economics has responded by amping-up our forecast process: we’re in “permanent forecast mode” until further notice, for a few reasons: first, official indicators are only just coming to light, and their changes have been so radical, that capturing them and calibrating our forecasting model, requires immediate adjustment. Second, shock-and-awe policy announcements are almost a daily occurrence, somewhere in the world. Keeping up with new measures requires a similar cadence of monitoring and forecast adjustment. Third, COVID-19 puts us into uncharted territory for the flattening of the infection curve and return-to-work policies. Precision on exit strategies and economic consequences requires constant vigilance.

This updated April 2020 Global Economic Outlook, finalized on April 20, sees global growth falling by 2.8% this year. Developed markets will be hardest hit, falling collectively by 4.2% in 2020. The U.S. will not tumble by as much as most other OECD countries, but -3.7% is still pretty awful. The United Kingdom and France take harder hits, falling 6.5% and 5.7%, respectively.

Emerging markets have the benefit of higher potential growth, which makes their numbers look better. However, their relative economic duress is similar to that in the industrialized world. Collectively, output will drop 1.9% this year, with China sustaining an unthinkable 2.5% plunge.

Canada isn’t spared. We entered this crisis with poor fundamentals. Consumer savings were low, and debt-to-income spiked to an all-time-high 180%, helping to fund a cross-country housing bubble. Investment and trade were faltering, thanks to the uncertainty of North American trade relations, the U.S.-China trade dispute and Brexit. Our higher trade-dependence made us especially vulnerable to the virus-related stoppage of large portions of international trade. And the ravages inflicted on the oil industry have devastated a key Canadian GDP machine.

As such, our outlook for Canada’s 2020 growth is an OECD-outlying -9.4%. Numbers to date show a substantial drop in first-quarter output, with the worst yet to come in the April-June period. Outsized monetary and fiscal policy moves will hold things together until growth resumes, but weak commodity prices will keep our currency in the low- US-70-cent range.

Economic recovery will be directly related to the return-to-work developments across the globe. When that happens, we can expect similarly radical positive numbers. While this is expected in the latter half of this year, it won’t be enough to rescue the dismal annual numbers—that will have to wait until 2021, when world output rebounds to the tune of 6.2%. It’s an impressive number, but today, it seems a long way off.

Episodes like COVID-19 always end, and it’s important to keep our eyes and our hopes fixed on that future state. It’s much like wartime: the present is an endurance test that’s going to take all we’ve got. But our present persistence requires a fixation on ultimate victory. History strongly suggests that better times aren’t that far off. In the meantime, please stay healthy and safe…and press on!