Global economies respond to COVID-19 pandemic

On Friday, April 3, Burlington, Massachusetts-based Fastmarkets RISI hosted a webinar titled Global Macroeconomics and the Impact of COVID-19, where Lasse Sinikallas, director of macroeconomics at Fastmarkets RISI, provided an overview on global economic forecasts for the next year. 

Sinikallas quoted a 2002 statement from Donald Rumsfeld, former U.S. Secretary of Defense, to kick off his presentation: “Reports that say that something hasn’t happened are always interesting to me because, as we know, there are known knowns; there are things we know we know. We always 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. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones.” 

And COVID-19 appears to be one of those unknown unknowns to hit global economies this year, Sinikallas said. As a result, he said, it’s expected that most global economies will go down this year.

“We expect that based on current views, the economies [in the] U.S. and Europe will go down this year,” Sinikallas reported, adding that both of those economies are expected to improve in 2021. “Within a few years, we’ll return to the growth path we had forecasted earlier. This doesn’t mean there aren’t risks. [The] global economy has basically never seen this extent of a global shutdown before.”

US outlook

Sinikallas stated that the U.S. economy had been healthy and driven by consumption until the pandemic hit. For the near-term future, he said he expects the U.S. economy to experience negative growth, particularly in the second and third quarters of 2020. He added that the U.S. economy may start to improve by the fourth quarter of 2020 and into the beginning of 2021.

During the webinar, Sinikallas reported that he projects the U.S. will experience 1.9 percent economic growth for most of 2020. He said he expects the growth to rise to 3.7 percent in 2021.

He said rising unemployment levels in the U.S. affected the economic outlook. In March, unemployment rose 4.4 percent in the U.S. and it is expected to rise again in April.

“This is just a tiny bit of what we’ll see next month, and that’s worrying,” he said. “But we expect things to evolve all the time. Things might change.”

Economic outlook in China and Europe 

The coronavirus, as well as export market declines, halted China’s economy so far this year, Sinikallas said. He reported that China has a high level of debt risk right now. 

Sinikallas reported that China’s economic growth has slowed to about 3.7 percent this year, which is down from what was originally projected for the year. However, he said it’s projected that China will experience about 6 percent economic growth in 2021. 

However, in Europe, economic growth had been slow prior to the pandemic. Sinikallas reported that growth has now slowed even more in the region. 

He said the European economy likely will suffer the most during the first two quarters of 2020 and that it could start to see improvements in the third and fourth quarters of the year. 

Risks and conclusions

Sinikallas concluded that some risks could change the outcome of global economies, including the pandemic and the impact it has on supply chains, trade policies, the U.S. presidential election, how central banks handle the stimulus, China’s growth deceleration and additional geopolitical tensions. 

Overall, he said predictions are that the world economy will decelerate in 2020 with projected rebounds for 2021. “We expect, based on current views, that the economies of the U.S. and Europe will go down this year, but next year will be better,” he said. 

Yet, he concluded that things could change and that there is still “very high” uncertainty regarding global economies because of COVID-19.