LONDON, July 8, 2020
LONDON, July 8, 2020 /PRNewswire/ -- COVID-19 has changed the global landscape dramatically. Here we set out answers to the most popular 10 questions that our customers have been asking. They range from what might happen in the near-term (the effect of a second COVID-19 wave) to what a post-COVID-19 norm will look like: what are the consequences of the unprecedented COVID-19 stimulus?
How will a second COVID-19 wave change CRU's forecast?
A second COVID wave risks deepening the 2020 global downturn. In our base case forecast, we assume that lockdowns across major economies end in Q but social distancing (enforced or voluntary) continues into Q4. Q2 is expected to be the trough in global activity, followed by a recovery in Q3. Implicit in that forecast is the assumption that there is no sizeable second outbreak. Fears of a second wave have increased following the recent rise in cases in China, Germany, and the USA (Figure 2a). CRU calibrate a scenario in which new outbreaks gives rise to a significant rise in COVID cases, that lead to two additional lockdowns (in Q4 of 2020 and Q1of 2021). The lockdowns are likely to be less stringent than those imposed earlier in the year but would be present in all the major regions. If that did happen it could lower world GDP growth to -9% in 2020, almost twice the size of our June base case forecast of a 5% fall.
Which sectors will be hurt the most by COVID-19?
Hospitality, retail, and transport are hit hardest by COVID-19 (Figure 3). These sectors will continue to suffer as the need for social distancing will constrain spending at restaurants and in clothing shops. We expect the service sector to be hit harder than the manufacturing sector in this downturn. We also expect winners and losers within manufacturing. For example, motor vehicles will recover only slowly given its weaker footing following rising climate awareness and rising protectionism. In contrast, high tech, and electronic industries, which have prospered recently, are expected to accelerate further as consumers plan for more time at home. In that sense COVID has accentuated existing sectoral trends.
Will the US-China trade deal collapse?
Risks of the trade deal collapsing are up, as tensions build between the two sides. Under the US-China phase I trade deal, on 15 January, China agreed to purchase more US goods and services to a combined value of $200 billion over 2020-2021 compared to their 2017 levels. The Peterson Institute tracks China's monthly purchases of US goods and finds that on a prorated basis, China has fallen behind. This has sparked fears that the phase I deal will collapse. Strictly speaking it is the year-end figures that matter, so China could still meet its target with surging purchases later in 2020. The trade deal aside, accusations on the origin of COVID-19 and China's proposed new security laws on Hong Kong have led to a deterioration in US-China relations.
Our expectation is that the relationship will deteriorate further, ahead of the election. CRU's previous trade war scenario analysis showed that additional tariffs on all Chinese imports would lower growth in China and the USA. Taken together, world GDP could fall by a further 1 percentage point. Some have argued that a tough stance on China may benefit Trump's chances of re-election, but it would be an unwelcome development for the global economy.
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