Global GDP to return to pre-virus levels by mid-2021 says Deutsche Bank in a positive revision to estimates
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Global economic growth is on track to return to pre-virus levels by the middle of next year, according to a note on Monday by Deutsche Bank's global head of economic research, Peter Hooper. Currently the growth rate is almost half-way back to reaching pre-virus levels, Hooper said. "Global economic recovery from the depths of the Covid-19 plunge this past winter and spring has proceeded significantly faster than we envisioned in the gloomy days of early May when we last updated our overall world outlook," Hooper said. Deutsche Bank originally estimated in May that global gross domestic product would shrink 5.9% in 2020. The bank has now upgraded this estimate to a contraction of 3.9% for the year. The bank also upgraded its forecast for global GDP in 2021, which it now expects to see increase by 5.6%, up from its estimate back in May for a rise of 5.3%. The International Monetary Fund in June published that it expected 5.4% growth in 2021.
The improved forecast comes from an anticipation for stronger economic recovery over the second and third quarters of the year, driven by supportive fiscal and monetary policies in the US and Europe, together with measures that have helped slow the spread of COVID-19 in the Asia region, Hooper said. The optimistic outlook on vaccinations has also played a role in Deutsche's GDP upgrade. Hooper said there were more than 170 vaccine candidates in development today, with nine vaccines currently in phase three trials. The bank has an expectation that "widespread vaccinations will begin by next summer." READ MORE: We just got our first promising data on a new kind of drug to treat COVID-19. Here's how Lilly and 13 other top drugmakers are sprinting to develop vaccines or treatments that can halt this pandemic. Despite the positive recovery in the spring and the summer, Hooper expects the pace to slow, as the northern hemisphere moves into the colder months, combined with the likelihood that fresh US fiscal support will not be forthcoming until after the election in November. Even as global GDP reaches pre-virus levels, Hooper said there will still be lasting effects on GDP from consumer behavior and the labor market, such as a greater prevalence of online shopping, the impact of working from home and reduced demand for travel and restaurant services. These effects will likely impact a "full recovery of economic activity to levels envisioned prior to COVID-19." There is also an increasing chance of "financial disruption down the road", Hooper said, which could stem from growing overvaluation of assets and mounting debt levels from monetary and fiscal stimulus packages and could impact GDP. He also said that policy will inevitably have to tighten following the period of easing seen amid the pandemic. READ MORE: An ex-Wall Street chief strategist says the market's comeback has made most investors 'blissfully unaware' of its real risks — and lays out 6 reasons why another free-fall is on the cardsJoin the conversation about this story » NOW WATCH: Here's the shortest route for a road trip across the US to see 50 national landmarks
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IMF says more must be done to tackle rising poverty, unemployment and inequality despite record public...IMF says more must be done to tackle rising poverty, unemployment and inequality despite record public debtsCoronavirus – latest updatesSee all our coronavirus coverageGovernments will need to step up their efforts to fight the pandemic and the global economic downturn despite public debts reaching record levels, according to the International Monetary Fund.In a clear message to rich countries that they should continue to borrow cheaply to limit the damage from the virus, the Washington-based lender of last resort said: “More needs to be done to address rising poverty, unemployment and inequality, and to foster the economic recovery.” Continue reading...
Summary List Placement "Doom and gloom" about the long-term effects of COVID-19's economic slump may be...Summary List Placement "Doom and gloom" about the long-term effects of COVID-19's economic slump may be overdone, according to Capital Economics. Compared to the 2008 financial crisis, there are fewer reasons to expect the pandemic will weigh down on economic growth in the long-term as gradual rebounds are already underway, the research group's chief economist said. Instead of focusing on output, economic legacy will be seen in other areas such as structural changes, de-globalization, and the role of state. Most economies will not return to pre-virus GDP levels for another two to three years, but China — driven by an investment-intensive stimulus — will lead the way. Visit Business Insider's homepage for more stories. It isn't all "doom and gloom" when considering the pandemic's long-term effect on the economy, according to Capital Economics. Pessimism over the economic slump triggered by COVID-19 might just be overdone, Neil Shearing, the research group's chief economist said in a webcast on Thursday. Compared to the 2008 financial crisis, there are fewer reasons to expect the pandemic will weigh down growth in the long term, he said. Instead, economic legacy will be found in the pushback against globalization, higher debt levels, a different way of working, and less emphasis on austerity on austerity in particular. These factors have major implications for commodity markets, in which some industrial metal prices are above their pre-virus levels and still have further room to go. States will be radically transformed with different sectoral makeup for some economies, and some will shrink permanently while others will grow and develop in their place, Shearing said. He pointed out that most economies will not return to pre-virus GDP levels for another two to three years, but China — driven by an investment-intensive stimulus — will lead the way. Read More: Goldman Sachs says oil prices are set to move 'meaningfully higher' into next year. Here are 7 reasons why the firm is bullish, and 5 stocks it recommends buying in advance Throughout the group's forecast horizon, central banks are expected to continue to keep interest rates at rock-bottom levels. Gold prices will remain elevated in the medium-term, given that real yields, which strip out the effects of inflation, are likely to remain low. Demand of industrial metals cratered earlier this year following virus-containment measures, and led to record-low price levels in March. But prices have rebounded quickly, and all except aluminum and lead are now higher year-to-date, James O'Rourke, a commodity economist's report showed. Despite the year's rally, prices can be expected to rise a little more by end-2021, he wrote. "For one, China's economy is on track to return to its pre-virus path by end-2020, far earlier than any other major economy," O'Rourke said. "The recent ramp-up in China's fiscal stimulus, with its focus on metals-intensive infrastructure spending, has room to run this year, while a further economic boost will come from faster credit growth." The huge stimulus-led price rally after the great financial crisis came on the back of massive credit growth, on a scale which might not be repeated this time, the report said. For oil, international benchmark Brent crude's recent drop to a two-month-low shows its fragile nature of price recovery. An uneven recovery in demand, and the effect of vast surplus oil inventories accumulated in the first half of the year will likely limit any price gains. Brent is unlikely to see much in the way of price gains over the remainder of the year. Capital Economics expects it trade around $45 a barrel by the close of the year, compared with around $43 now. "Even as most sources of oil demand return to more 'normal' levels as economies recover, we suspect that jet fuel consumption will remain depressed as a result of ongoing travel restrictions and a fall in commercial passenger flights," O'Rourke said. Demand is likely to run faster than supply, which will help run down some of the overhang of unused fuel in storage tanks, but not fast enough to trigger a large burst higher in the price. "We think that the outlook for oil prices will brighten a little next year, as supply fails to keep pace with a continued revival in demand," he concluded. Read More: Jefferies handpicks the 17 best stocks spanning multiple sectors to buy now — and details why each company's future looks 'particularly attractive,' even in a downturnSEE ALSO: World Bank chief economist says full global recovery from the COVID-19 crisis may take 5 years Join the conversation about this story » NOW WATCH: Why electric planes haven't taken off yet
Summary List Placement Global stocks slid on Thursday, while the dollar edged up, after the...Summary List Placement Global stocks slid on Thursday, while the dollar edged up, after the US Federal Reserve gave no indication that any new stimulus measures would be forthcoming, as the economy continues to recover from the effects of the coronavirus pandemic. In its last meeting before US presidential elections in November, the Fed raised its forecasts for US economic growth, inflation and predicted unemployment will shrink faster than it expected three months ago. "The recovery is here, it's well along," Fed Chairman Jerome Powell said at a press conference on Wednesday after the decision to leave US interest rates at 0.25%, as expected. The central bank now expects gross domestic product to shrink by 3.7% this year, an improvement on its last estimate in June of a 6.5% decline. It forecast core consumer inflation will remain below its 2% target, but will average 1.5%, up from 1.0%, while it now expects unemployment to reach 7.6%, compared with its last forecast of 9.3%. And yet, US indices slid broadly, reacting more to the lack of any signal that more fiscal stimulus may be forthcoming. Futures on the S&P 500, the Dow Jones and the Nasdaq 100 fell between 1.0 and 1.4 percent, suggesting a second straight day of declines when the market opens later in the day. The dollar, meanwhile, rose for a third day against a basket of major currencies, to last trade up 0.1% at 93.21, set for its first monthly gain since April. Gold, which tends to move inversely to the dollar, fell by nearly 1% to $1,951 an ounce, set for its largest one-day loss in two weeks. Meanwhile, European shares fell, pushing the Stoxx 50 down by 0.7%, following a widespread decline on Asian equity markets overnight, when the Nikkei dropped 0.7%, the Shanghai Composite fell 0.4% and the Kospi lost 1.2%. Financial markets, and stocks in particular, have profited from trillions of dollars of cheap money that the stimulus programs that the Fed, and other central banks, have implemented this year to shore up the economy, encourage borrowing and consumer spending. The S&P 500 and the Nasdaq have hit record highs this month, fueled largely by the expectation that the Fed will firstly, keep rates low for an extended period of time, and secondly, will keep the option of providing more fiscal support on the table. "Markets always want more," Robert Carnell, regional head of Asia-Pacific research at ING, said. "But, should you keep feeding them?" The Fed signaled it will not raise US rates until at least 2023. "While risk assets might love the intravenous drip of monetary stimulus, it is time to focus on policies that the real economy need … Perhaps the market reaction here is more a realization of this and the fact that any resolution to the current impasse is unlikely until the Presidential election outcome is determined," Carnell said. Indeed, the overall health of the economy has improved rapidly, since witnessing the biggest quarterly contraction on record, between April and June. The number of people out of work has fallen to around 13.5 million from a pandemic high of over 23 million, while various gauges of economic activity, including manufacturing and consumer spending, show recovery is ongoing. "In terms of the overall economy, Chair Powell acknowledged that "the recovery has progressed more quickly than generally expected," but did caution that the recent pace may slow as 'the path ahead remains highly uncertain'," Jim Reid, a research strategist at Deutsche Bank said. "They are essentially projecting the economy to reach Q4 2019 pre-covid levels by the end of 2021," Reid said.Join the conversation about this story » NOW WATCH: A cleaning expert reveals her 3-step method for cleaning your entire home quickly