Credit rater, S&P global says we are looking at a global economic recession because of the coronavirus pandemic, while the ANZ has joined Westpac’s economics team in forecasting a recession in Australia this year.
S&P, Westpac and the ANZ all forecast a surge in unemployment in coming months, a view that will be tested by the release later this morning of the labour force data for February from the Australian Bureau of Statistics.
S&P based its new forecast on Monday’s industrial production, investment and retail sales data from China – all of which showed record falls in the level of activity in January and February, as did earlier surveys of manufacturing and services for last month.
The 12.3% slump in output was much more than any forecast from the markets and S&P said this signalled a knock-on effect across the globe in the coming months.
It sees the global economy growing by between 1% and 1.5% in 2020 (previous forecasts were around 2.9%) which will be below global population growth.
The US faces a year of either zero growth or a fall of 0.5% from 2.1% in 2019 while China’s economy would likely only grow by 3.2% against 6.1% last year and in effect, a recession.
S&P already has forecast Australian growth to be around 1.2% this year, down from the weak 2.2% in 2019. The ratings group says unemployment will top 7%, while the ANZ said yesterday that it would hit 7.8%. At those levels, there will be between 170,000 and 200,000 more people on the jobless rolls.
S&P chief economist Paul Gruenwald said it was clear that as countries were forced to close down their economies to deal with the virus, the financial impact would be severe.
“The initial data from China suggests that its economy was hit far harder than projected, though a tentative stabilisation has begun,” he said.
“Europe and the US are following a similar path, as increasing restrictions on person-to-person contacts presage a demand collapse that will take activity sharply lower in the second quarter before a recovery begins later in the year.”
Tuesday saw the US, New Zealand and Britain announced substantial stimulus packages to help their economies through the virus outbreak. The UK’s package will be around 15% of GDP, NZ’s around 4% and the US package of $US850 billion will be around 4%, which is not enough.
S&P also predicted that there would be a massive surge in the number of companies that collapsed because of the tight restrictions on their economies.
It estimates more than one-in-10 non-financial corporate firms in the United States could be forced into default over the next 12 months. Across Europe, the agency believes the default rates will be in the high single digits.
Meanwhile, Westpac chief economist Bill Evans now says the outlook for the Australian economy was deteriorating.
The bank now believes the Australian economy will contract through the first half of this year by one percentage point, before rebounding by 2.5% in the second half.
Unemployment is tipped to reach 7% by October.
An increase of that size would see an extra 170,000 people out of work over the next 7 months, with the tourism, recreation, education, and dwelling construction areas worst hit.
The number of people actually in the job market would also fall as they lose heart and stop looking for work.
