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Economics Outlook World The global economy will take a severe hit this year as the coronavirus pandemic has brought economic act...

Major Economies Forecast (April 2020)




Economics Outlook

World
The global economy will take a severe hit this year as the coronavirus pandemic has brought economic activity to a screeching halt across large swatches of the globe, including in Asia, Europe, and the United States. Uncertainty over the outlook is elevated, given the constant evolution of the pandemic and lack of clarity regarding when widespread lockdowns will be lifted.

Canada
The economy is now seen contracting this year, as a spike in the unemployment rate weighs on private consumption and business investment declines. Moreover, depressed oil prices will likely pummel the energy sector. That said, stronger monetary and fiscal stimulus should limit the downturn. A worsening outlook for the U.S. economy poses a significant downside risk.

Euro Area
Economic activity is set to be severely hit this year as the pandemic disrupts supply chains, hits tourist flows and dampens both domestic and external demand. In addition, the outbreak could exacerbate the frailties of those banking systems which are burdened by a high stock of bad loans as well as strain debt sustainability in countries with heavy public debt-to-GDP ratios.

Japan
The economy will take a significant hit this year as the coronavirus pandemic hampers activity, which was already set to be dragged on by the sales tax hike of last October. That said, increasingly accommodative fiscal and monetary policy should cushion the blow.

United Kingdom
The economy is seen shrinking this year due to the impact of Covid-19 on private consumption, investment and exports. However, huge fiscal and monetary stimulus should cushion the fall. A possible lengthy lockdown and a worsening of the viral outbreak pose downside risks.

United States
The U.S. is now expected to enter a recession, ending the 11-year- record expansion. Consumer spending will contract due to social distancing and rising unemployment, while investment is set to decline. Fiscal and monetary stimulus should provide some relief but will not prevent a recession. An uncontrolled outbreak is the preeminent risk, while hefty corporate debt clouds the outlook.

Switzerland
Switzerland is now expected to fall into recession this year. Consumer spending will be strained by the containment measures; investment is projected to decline; and the external sector will likely remain depressed. Moreover, the postponement of major sporting events will limit services exports this year.


Fiscal Stimulus 

Canada
Government steps in to protect economy from Covid-19 pandemic In recent weeks, the government has announced fiscal stimulus measures worth roughly CAD 227 billion (USD 162 billion) to support the economy as it reels from the fallout of Covid-19. The package is mainly comprised of wage subsidies, state-backed loans, tax deferrals and direct support measures, and amounts to approximately 10% of GDP as of 27 March.

Euro Area
European Commission suspends budget rules in fight against coronavirus On 20 March, the European Commission (EC) suspended the Stability and Growth Pact—a set of fiscal rules designed to prevent Eurozone countries spending beyond their means—in order to allow government budget deficits to temporarily exceed the 3.0%-of-GDP limit without triggering an excessive deficit procedure. As part of efforts to shield their economies from the severe economic fallout from the coronavirus pandemic, all Eurozone governments have adopted a combination of additional financing for their health care systems; measures to sustain wages and incomes; liquidity support for businesses; and public guarantee schemes for bank loans to companies.

Japan
Olympics postponed as government eyes enormous fiscal stimulus On 24 March, Prime Minister Shinzo Abe announced the postponement of the Tokyo 2020 Olympic Games until July next year. The postponement has also made the passing of fiscal stimulus measures even more pressing. As such, on 28 March PM Abe announced that the government is preparing a package bigger than the one Japan used to counter the global financial crisis in 2008— which was worth JPY 57 trillion (USD 528 billion)—to be approved at the earliest possible date. 

United Kingdom
Chancellor opens the spending taps to prop up sinking economy In recent weeks Chancellor Rishi Sunak announced a host of policies running into hundreds of billions of pounds aimed at supporting economic activity and avoiding permanent damage to the economy from the Covid-19 fallout. While the measures should certainly alleviate the impact of the collapse in domestic and external demand from widespread shutdowns around the world—including in the UK— the negative impact of Covid-19 on the economy this year will still be significant. The budget deficit and public debt are expected to widen markedly as a result. 

United States
Congress approves USD 2 trillion coronavirus stimulus deal After days of heated negotiations, U.S. policymakers passed a historic stimulus package on 27 March amounting to roughly USD 2 trillion (close to 10% of GDP), in efforts to combat the severe economic fallout from the coronavirus pandemic. The major facets of the spending plan are direct transfers and expanded unemployment benefits for American individuals and families, financial assistance to embattled sectors, loans to small businesses, and funding for hospitals.


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