2020 economic outlook: While some numbers, such as industrial production, decreased substantially recently, recovery expectations now are less grim. Meanwhile, the pandemic evolves unevenly around the world.
First things first: The pandemic developed quite differently across countries. While China managed to decrease numbers quickly and European countries are currently on track with declining cases, the United States and developing countries such as India or Brazil are struggling with a high number of newly confirmed cases (Figure 1).
This implies enormous consequences for the global economic recovery as countries will re-open their economies at different points in time with the expected implications for trade and supply chains.
Industrial production is at a low, but expectations increase
Industry got hit hard by the economic consequences of the pandemic. Figure 2 shows the industrial production index for the eurozone and major European economies. The sharp decline in industrial production looks no different in other parts of the world.
With industrial production falling, world trade already shows a sharp drop in March and can be expected to decline further in the coming months (Figure 3).
However, there are signs of hope. Expectations are on the rise. Business and consumer confidence show upward trends and the Global Purchasing Managers Index, a survey of more than 10,000 industrial companies in 32 countries, and a very important leading indicator has gone up again (Figure 4).
In addition, the unemployment rate in the US fell again slightly to 13.3 percent in May 2020 – after rising sharply in April to 14.7 percent (Figure 5).
A big bank has yet to collapse. The financial system is more robust than many would have guessed, and the major stock market indices fuelled by expansionary monetary policies and lack of alternatives for investments are on the rise.
As a result, most economic forecasts are predicting a recovery in 2021 after a sharp drop in real GDP in 2020 which would mean a V-shaped recovery. This is exemplified in a global economic forecast published on June 18, 2020, by the Kiel Institute for the World Economy (Figure 6). Although 2020 losses in growth cannot be offset by the expected growth in 2021, at least a reversal of the trend is expected.
2020 economic outlook: Let’s have some faith
As former US Secretary of Defense Donald Rumsfeld once famously said in a press conference:
“There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.”
Apart from the unknown unknowns, we still face a lot of known unknowns about the development of the pandemic and its economic consequences. But there is at least some light at the end of the tunnel, so let’s make the best out of it – and maybe there will be a vaccine faster than we think.
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