Goldman Sachs says advanced economies will shrink by 35% in the second quarter but job losses are 'temporary'
Advanced economies will shrink about 35% in the second quarter of 2020 compared to the first three months, according to Goldman Sachs' chief economist Jan Hatzius. Hatzius praised global policymakers for their responses to keep households and businesses afloat, but gave counsel that Europe should do more and wealthy countries need to help developing economies. "Emerging economies will need a lot more help from the rich world," Hatzius wrote. Visit Business Insider's homepage for more stories.
Advanced economies will shrink by about 35% in the second quarter from the prior three months of 2020, Goldman Sachs predicted in a note dated April 13. The forecast contraction equates to four times as much as the previous record set in 2008 during the financial crisis, according to annualized figures from Goldman Sachs, and is causing a labour market implosion. Although most job losses are in the form of temporary layoffs and unemployment benefits have been raised sharply, the separation of workers from their jobs is "dramatic", the bank's New-York based chief economist Jan Hatzius wrote in a note to clients. While the number of new active coronavirus cases appears to be peaking across the globe, optimists might look at this as a signal to reopen the economy, but pessimists will counter that the main reason for this is social distancing, the note said. The improvement is "probably a direct consequence of social distancing and the plunge in economic activity, and could reverse quickly if people just went back to work," Hatzius wrote. Global policy makers have set up impressive responses to try to replace people's incomes and have aggressively countered threats to the flow of credit, Hatzius wrote, but said efforts in Europe should be scaled up and have an unconditional "whatever it takes" approach commitment. To get through the severe crisis, "emerging economies will need a lot more help from the rich world," he said, highlighting measures such as bilateral loans, IMF and World Bank financing and outright aid. As the death toll soared in the US and western Europe, global cases of the novel coronavirus have reached about 2 million with more than 100,000 fatalities. Last week, the International Monetary Fund raised its emergency lending facilities after more than 90 countries requested aid from the IMF.SEE ALSO: Apple and Google say their coronavirus-tracking tech will remain 'opt-in' only, and governments won't be allowed to require people to use it SEE ALSO: Walmart clarifies its policy on the sale of nonessential goods after a shopper said she was barred from buying a baby car seat SEE ALSO: A third of the global population is on coronavirus lockdown — here's our constantly updated list of countries and restrictions Join the conversation about this story » NOW WATCH: Why bidets are better than buying countless rolls of toilet paper
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China's economy looks set for a much-vaunted V-shaped recovery, while the rest of the world lags behind. Here's why.
China looks to be on course for a V-shaped economic recovery from its coronavirus hit, growing...China looks to be on course for a V-shaped economic recovery from its coronavirus hit, growing 11% in the second quarter of 2020 compared to the first. But economist Miguel Chanco, of Pantheon Macroeconomics, tells Business Insider he expects China GDP to fall by 1.2% in 2020. China, however, is the only major economy that will see a V-shape, two economists told Business Insider. Most major nations will see W- or swoosh-shaped recoveries. Visit Business Insider's homepage for more stories. When China's GDP bounced 11% quarter-on-quarter in Q2, it affirmed views that the world's most populous and the first country hit by the coronavirus pandemic may be on course for a V-shaped recovery, something which has become more of a fantasy elsewhere in the world. China is well ahead of the game in terms of its recovery, but how did it get there, and what's to come for the world economy? Business Insider spoke to two economists to get their views on why. China's potential GDP is much higher than other countries Christophe Barraud, chief economist and market strategist at Market Securities told Business Insider a reason why China has recovered faster than the US, is due to its higher potential real GDP growth, also known as real output. He said: "Potential real output is much higher in China than in advanced economies. Chinese [potential] is close to 6% while for advanced economies it is close to 1.5%." Read more: GOLDMAN SACHS: Stocks have never been more vulnerable to the failure of a few mega-companies — and the risks of a blunder are quickly piling up Barraud added that demographics in China means that "mechanically Chinese growth will recover faster than in advanced economies." "I think for Europe or US it will be almost impossible to reach the level seen in the fourth quarter of 2019 before 2022," Barraud said. China's economy will contract by 1.2% in 2020 Miguel Chanco, senior economist at Pantheon Macroeconomics told Business Insider: "The second half of the year is going to be very different from Q2. It's going to be much softer. Now that's a huge parts of China's economy are sort of back to where they were pre-COVID-19." China's economy grew by 3.2% year-on-year in the second quarter of the year and by 11% compared to Q1, beating Reuters economists' predictions. Read more: Jefferies is telling investors to buy these 13 cheap, under-the-radar stocks in order to bet on an economic recovery But he now expects growth in China to fall about 1.2% for the full year. Chanco explains that China has recovered faster than the US and Europe due to the strict measures it took at the inception of the crisis. "Because it's taken a while for the virus to be suppressed in Europe, it will probably take a lot longer for those economies in [western] part of the world to sort of go back to their pre COVID rates of growth," he said. The US likely faces a double-dip or "W" shaped recovery For the US, both economists are predicting a double dip recession, signified by a "W shaped recovery" or a swoosh-shaped recovery at best. Market participants spent much of June speculating whether the US was on course for a V-shaped recovery as some states began to re-open and May's jobs report showed the US added 2.5 million jobs defying expectations of 7.5 million jobs lost. But this V-shaped recovery expectation for the US has waned after a surge in virus cases. The US surpassed its biggest single day-rise with more than 75,000 cases reported on Thursday. As recently as June 24 the record was 37,014, and the record has been broken 11 times in the last month alone. "I think most developed markets will actually look like a Nike Swoosh. So you basically have a very steep drop and prolonged sort of return for long and very gradual recovery. With the second wave in the US reaching new heights, I think you could probably see a double dip there," Chanco said. Read more: 'Castles built on sand': Famed economist David Rosenberg says investors are being too reckless as stocks rally — and warns that a vicious long-term bear market is far from over 'China has made other emerging markets look bad' Chanco said India was the only country who he predicts an "L-shaped recovery" for, essentially a sharp contraction without any real economic comeback. "We are expecting a 10% contraction in India's economy this year and that's historic in many ways for one who hasn't had a recession in its modern history decades," Chanco said. "But in China we are probably looking at 1.2% contraction year-on-year. So that's a huge difference in outcomes. I think this is where sort of China has made other emerging markets look bad," he said. "The governments of India, Brazil and other emerging markets haven't really solved the problem of COVID or taken it seriously." Recent tensions between India and China could also prolong India's recovery from the virus, Chanco said. Tensions have flared in recent weeks between India and China, with some already speculating that the fighting on the two countries' Himalayan border could be a catalyst for a major conflict. Chanco explained India's strong "protectionist response" to the flareup will likely be problematic given India's reliance on China for imports. Brazil, the country with the second largest number of cases worldwide, will recover faster than India from the virus, he said. "In some ways Brazil being a commodity exporter will benefit to a large extent..as the trade links between Brazil and China are a lot stronger than they are between China and India," he said." Chanco added: "If Chinese demand recovers the way they expected to, then that will, to a certain extent, cushion the blow in Brazil. But India being a multi-domestic demand driven economy won't have this sort of lift from any recovery and external demand." Read more: Jason Tauber is crushing the market this year by finding the tech companies enabling the biggest disruptions. He told us how he's adjusting his game plan as valuations soar — and 7 of his top picks today.Join the conversation about this story » NOW WATCH: Why you don't see brilliantly blue fireworks
World Economic Outlook says UK economy is on course to shrink by 10.2% in 2020Coronavirus –...World Economic Outlook says UK economy is on course to shrink by 10.2% in 2020Coronavirus – latest updatesSee all our coronavirus coverage The International Monetary Fund has said the global economy will take a $12tn (£9.6tn) hit from the Covid-19 pandemic after slashing its already gloomy growth projections for the UK and other developed countries in 2020.The IMF said it would take two years for world output to return to levels at the end of 2019 and warned that governments should be cautious about removing financial support to their fragile economies. Continue reading...
The International Monetary Fund on Wednesday again slashed its forecast for the global economy, seeing a...The International Monetary Fund on Wednesday again slashed its forecast for the global economy, seeing a deeper recession and longer recovery from the shock of the coronavirus pandemic. The fund now expects global gross domestic product to contract 4.9% this year, down from its 3% forecast in April. It also cut its 2021 expectations, and now forecasts growth of 5.4%, a step down from its previous estimate of 5.8% growth. Read more on Business Insider. The International Monetary Fund on Wednesday slashed its forecast for the global economy again, predicting a sharper recession and longer recovery from the impact of the coronavirus pandemic. The IMF now sees global gross domestic product shrinking 4.9% in 2020, a worse contraction than the 3% decline it previously forecast in April. The fund also foresees a slower-than-expected recovery — it cut its expectations for global growth in 2021 to 5.4% from 5.8%. "The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast," the IMF said in its World Economy Outlook update. The update comes after the IMF in April said the shock of the coronavirus pandemic and sweeping lockdowns to contain the disease would form the worst economic meltdown since the Great Depression. Now, the IMF's dire forecast reflects "greater scarring" from a larger-than-anticipated hit to activity, and continued lower demand from social distancing practices. "The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s," the IMF said. Overall, the new forecast would leave 2021 GDP more than six percentage points lower than in the IMF's pre-COVID projections of January 2020, according to the report. The IMF said that as in April, the current forecast comes with a "higher-than-usual degree of uncertainty" due to the pandemic. Read more: Aram Green has crushed 99% of his stock-picking peers over the last 5 years. He details his approach for finding hidden gems — and shares 6 underappreciated stocks poised to dominate in the future. The IMF also sees a severe hit to the global labor market, and said the loss of work hours in the second quarter is likely equivalent to more than 300 million full-time jobs. "The hit to the labor market has been particularly acute for low-skilled workers who do not have the option of working from home," said the IMF. "Income losses also appear to have been uneven across genders, with women among lower-income groups bearing a larger brunt of the impact in some countries." There are some bright spots, according to the IMF. Financial conditions have eased in advanced and to a lesser extent emerging economies, forestalling worse near-term losses. Announced fiscal measures are now about $11 trillion globally, up from $8 trillion in April, the report showed. Still, significant downside risks to the forecast remain without a medical breakthrough such as a vaccine or a sharp rebound in business activity. More lockdowns, tightening financial conditions, prolonged unemployment, and wider firm closures could lead to more economic pain. "This could tip some economies into debt crises and slow activity further," said the IMF. The IMF sees advanced economies experiencing sharper declines in GDP, forecasting an 8% contraction in 2020 compared with a 3% decline in emerging economies. US GDP is expected to decline 8% in 2020, worse than the IMF's April forecast of 5.9%. In 2021, US GDP may grow 4.5%, according to the report. The Europe area GDP is expected to slump 10.2% in 2020, and grow 6% in 2021. China is forecast to grow 1% this year and 8.2% next year, according to the report. Read more: A CEO overseeing $147 million outlines his 4-part strategy for identifying which stocks to buy — and shares 2 he sees primed to explode higher right nowJoin the conversation about this story » NOW WATCH: Tax Day is now July 15 — this is what it's like to do your own taxes for the very first time