l'Actualité du Solaire

The almost simultaneous disruptions resulting from the coronavirus to manufacturers, supply chains, international trade flows, travel, demand, as well as blockages in the banking and financial world have dealt a severe blow to the global economy. The United States, Europe and Japan are heading into recession.

The IHS Markit forecast for global GDP growth in 2020 has been revised down to 0.7% in response to the spread of the virus (growth below 2.0% is classified as a global recession). The number of people infected worldwide is expected to peak in the third quarter.

For the time being, the global economy is more likely to follow a U rather than a V-shaped cycle, as a sharp reduction in growth in the short term will be followed by a slow recovery. The recent sharp fall in oil prices will help energy consumers but hurt energy producers. The net effect on global growth is expected to be negative, but small. The outlook for the world economy will depend crucially on how governments respond and what measures are taken. For the time being, central banks have already taken emergency measures, but the fiscal response is more uncertain.

United States: A recession will begin in the second quarter : Fear and financial stress related to the spread of the virus have wiped out the confidence that existed at the beginning of 2020. Equity values have fallen by more than 25% since the beginning of the year, wiping out trillions of dollars of household wealth. Real GDP growth will be severely affected in the second quarter as consumers spend more cautiously and businesses put some investment on hold until the outlook brightens. Travel bans and bans on public gatherings will also be detrimental. Growth is not expected to return before the end of the year.

Budgetary relief will be needed. The net effect of the sharp fall in oil prices will be to slow growth somewhat, on the one hand consumers are favoured, on the other hand oil producers and their suppliers will suffer. All in all, US real GDP is expected to fall by 0.2% on a calendar year basis in 2020.

In Europe Recession is imminent. The economies of the euro zone and the United Kingdom were already in a state of weakness before the impact of the virus. Real GDP in the euro zone grew by only 0.1% quarter-on-quarter and 1.0% year-on-year in the fourth quarter of 2019. This is the weakest performance in six years. Production in Germany remained stable, while Italy and France experienced contractions quarter after quarter. IHS Markit expects the virus to spread seriously, via trade, travel and tourism, financial markets and public perception. Italy is particularly vulnerable given its fragile economy, the high incidence of the epidemic and the resulting restrictions on activity. Germany will be hard hit by a decline in exports to mainland China, particularly the sharp drop in light vehicle sales, the recession in the Eurozone, with real GDP declining for much of the remainder of 2020. For the year as a whole, IHS Markit expects real GDP in the Eurozone to fall by 1.5%.

Japan is already in recession: Japan's real GDP fell 7.1% (annualized) in the fourth quarter of 2019 from the previous quarter. This is the consequence of a sharp drop in household consumption and a reduction in private fixed investment. Real GDP is expected to fall again in the first quarter due to the coronavirus. Both foreign and domestic tourism has declined and several major events have been reduced, postponed or cancelled. Nevertheless, the IHS forecast assumes that the Tokyo Summer Olympics of 2020 will take place. After expanding by 0.7% in 2019, Japan's real GDP is expected to contract by 0.8% in 2020 before recovering by 0.6% in 2021 and 0.5% in 2022.

China First in, first out? The incidence of the epidemic spread from Hubei to other regions due to disruptions in the supply chain. In addition, labour shortages hampered the return to work, as a large part of the workforce had travelled to their home region during the Lunar New Year and could not return to work quickly due to travel restrictions and local quarantine requirements. Data for January and February show a sharp drop in economic activity.

A key measure is to coordinate the resumption of work across regions. The authorities also indicated that they would intensify monetary stimulus and accelerate and increase investment spending. The IHS Markit forecasts that real GDP growth in mainland China will slow from 6.1% in 2019 to 3.9% this year as the economy contracts sharply year-on-year in the first quarter. IHS forecasts a rebound in growth in 2021.

The world will experience the worst slowdown in growth since the financial crisis of 2008-2009.

IHS March 18 Markit