What Is the Outlook for the Global Economy Amid COVID-19?
Despite a raft of bad economic news, North American stocks have rallied strong off March lows. The NASDAQ has notched up a new record high and the S&P 500 is nearing its pre-COVID-19 highs. The TSX still needs to climb 15% to get to its previous highs but continues to rally. All of that is in serious jeopardy, though. The World Bank predicts the global economy will face its worst recession in 80 years.
According to the World Bank, the global economy will experience its worst recession since World War II because of the COVID-19 pandemic. Global gross domestic product (GDP) is projected to contract by 5.2% in 2020; more than twice as deep as the 2009 Great Recession. Back in the first quarter, before COVID-19 shut down the global economy, the World Bank was projecting a 2.5% expansion in 2020.
That’s a best case scenario. If COVID-19 persists or there is another outbreak of COVID-19, the global economy will shrink almost 8%.
Advanced economies will see their GDP shrink by 7%, led by a 9.1% contraction in the euro area. U.S. GDP is projected to contract by 6.1% in 2020. Emerging and developing economies will see their GDP shrink by 2.5%. China’s economy meanwhile is expected to report GDP growth of 1% in 2020. That princely gain represents the lowest GDP growth rate since 1976.
The World Bank isn’t the only organization predicting a catastrophic recession in 2020. The Organization for Economic Co-operation and Development (OECD) says the global economy is on track for the worst peacetime recession in a century.
In a best-case scenario, assuming there is no second wave of COVID-19 infection, the global economy will retrace by 6% in 2020 and rise just 2.8% in 2021. If COVID-19 flares up again later this year, the global economy could shrink by 7.6%.
The economic outlook for Canada is worse. The OECD predicts Canadian GDP will decline at least 8% in 2020. If there is a second wave of COVID-19 later in 2020, Canadian GDP could tumble as much as 9.4%.
Both of these scenarios would be catastrophic, with rising unemployment, increased debt loads, and lower incomes wreaking havoc on global stocks.
Are Fears of a Second Wave of COVID-19 Justified?
There is growing concerns that there will be a second wave of COVID-19 later this year. The U.S. is opening up its economies, but 22 states are already seeing a massive increase in new COVID-19 cases.
Key states like Michigan have seen its COVID-19 infection rates soar more than 150% week-over-week. Arizona have seen infections rate soar more than 90% in one week, while COVID-19 infection rates in Arkansas and Utah were up 60% week-over-week. The number of cases in Massachusetts, Florida, and New Mexico’s have increased by more than 40%.
Economies may be opening up after being shuttered for three months, but we’re not out of the woods yet.
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Because of COVID-19, the global economy is on track for the worst recession in 80 to 100 years. Despite all the bad economic data rolling in, stocks have been on a head scratching rally. That is entirely unsustainable. Most think the global economy will rebound in 2021, but even that seems a little optimistic. The outlook for the global economy and stocks looks pretty dire, but that doesn’t mean investors should sit on the sidelines. The trading experts at Learn-To-Trade.com can help you trade more confidently and profit more consistently, no matter what the markets are doing.
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