Economic forecasts aren’t the least of COVID-19’s victims. Never has any human being seen such widespread and devastating revisions to the global growth outlook as we’ve seen in the past few weeks—it has no historical peer. Radical adjustment of forecasts is bad enough, but to make matters worse, relevance requires repeated revision; resets are obsolete almost as soon as they’re released. Clearly, this is doing nothing to calm the fears of transfixed consumers and businesses. It feels a bit like we’re free-falling in a bottomless pit; do we now have a better grip on the outlook?
It seems so. Numbers are now coming in that clearly illustrate the impact that the lockdown is having on economic activity. China was first to release shocking data releases; now they’re commonplace. Respected global forecasters, like the Organisation for Economic Co-operation and Development (OECD), the Institute of International Finance (IIF) and the International Monetary Fund (IMF), have all radically changed their outlooks, and private sector pundits in banks, research institutions and elsewhere are following suit. Others, frustrated by the pace and severity of change, have elected to cease their forecast operations until further notice. The IMF revisions say it all: world growth for this year was reduced from the previous forecast call by 6.3 percentage points. That’s a plunge that makes the world’s scariest roller-coasters look ruler-flat.
EDC Economics has responded to the situation by amping-up our forecast process. We’re actually in permanent forecast mode until further notice. That looks like a capitulation and an acknowledgement of untrackable chaos. Far from it; there are at least three good reasons for an episodic continuous process: first, indicators are only just coming to light. It’s easy to forecast direction of movement, but the magnitude of change is so radical that precision requires immediate adjustment. Second, shock-and-awe policy announcements are almost a daily occurrence, somewhere in the world. Keeping up with new measures requires a similar cadence of monitoring and forecast adjustment. Third, the coronavirus has put us into uncharted territory with daily concerns about flattening the infection curve and return-to-work policies. Precision on exit strategies and economic consequences requires constant vigilance. Forecasts that don’t keep up are worthless.
Our most recent Global Economic Outlook, which published today but was finalized on April 20, sees global growth falling by 2.8% this year. Developed markets will be hardest hit, falling collectively by 4.2% in 2020. The United States won’t tumble by as much as most other OECD countries, but let’s face it, -3.7% for the year is still pretty awful. The United Kingdom and France take relatively harder hits, falling 6.5% and 5.7%, respectively. Emerging markets have the benefit of higher potential growth, which makes their numbers look better. However, their relative economic duress is similar to that in the industrialized world. Collectively, output will drop 1.9% this year, with China sustaining an unthinkable 2.5% plunge, and others in disbelief at figures that were previously only really bad dreams.
Canada isn’t spared. In fact, we entered the COVID-19 crisis with poor fundamentals. Consumer savings were low, and debt-to-income spiked an to an all-time high of 180%. This helped to fund a cross-country housing bubble. Investment and trade were faltering, thanks to the uncertainty of North American trade relations, the U.S.-China trade dispute and Brexit. Our higher trade-dependence has made us especially vulnerable to the virus-related stoppage of large portions of international trade. And the ravages inflicted on the oil industry have devastated a key Canadian GDP machine. As such, our outlook for Canada’s 2020 performance is an OECD-outlying -9.4%. Employment numbers to date show a substantial drop in first-quarter output, with the worst yet to come in the April to June period. Outsized monetary and fiscal policy moves will hold things together until growth resumes, but weak commodity prices will ensure that our currency remains stuck in the low US-70-cent range.
Recovery will be directly related to the return to work, whether here or elsewhere. At that point, we can expect to see similarly radical positive numbers. While this is expected to happen in the latter half of this year, it won’t be enough to rescue the dismal numbers; that will have to wait until 2021 when world output rebounds to the tune of 6.2%. It’s an impressive number, but today, it seems a long way off.
The bottom line?
Episodes like COVID-19 always end and it’s important to keep our eyes and our hopes fixed on that point. It’s just like wartime: the present is an endurance test that’s going to take all we’ve got. But our present persistence requires a fixation on ultimate victory. History strongly suggests that better times aren’t that far off. In the meantime, please stay healthy and safe… and press on!
