The global economy is heading for its worst year since the financial crisis, Bank of America says

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An employee works on the production line of a robot vacuum cleaner factory of Matsutek in Shenzhen, China August 9, 2019.

Jason Lee | Reuters

Global economic growth is likely to be the worst this year since the Great Recession as headwinds from the coronavirus and other factors build, according to Bank of America.

Gross domestic product growth worldwide is projected to slow to 2.8% for 2020, which BofA Global Research said would be the first sub-3% reading since the recession and financial crisis ended in mid-2009.

The biggest weight is the coronavirus outbreak, which has slammed economic activity in China as the disease spreads. BofA economists say the U.S-China trade war, political uncertainty and weakness in Japan and some regions of South America also are part of the “large spillover effects” weighing on output.

“Extended disruptions in China should hurt global supply chains. Weak tourist flows will be another headwind for Asia,” BofA economist Aditya Bhave said in a note. “And limited outbreaks, similar to the one in Italy, are possible in many countries, leading to more quarantines and weighing on confidence.”

As part of the slowdown, BofA also sees China growth at 5.2% in 2020, down from 5.9% in 2019. Global GDP not including China is expected to rise just 2.2%, also the lowest since the recession.

The firm’s economists do not yet see the coronavirus turning into a global pandemic, and are not forecasting a recession. Instead, they see it as part of a larger slowdown trend driven by a multitude of factors that could be aggravated by this year’s U.S. presidential election and the possibility of continued effects from the trade tensions with China.

“The upcoming Presidential elections add another layer of complexity, as US trade policy would probably change significantly under a Democratic President,” Bhave wrote. “Business investment is likely to remain tepid until there is greater clarity on the rules of the game.”

Bhave said such “uncertainty shocks” tend to have “lagged, large and long lasting” impacts.

Tighter central bank policy and lingering aftereffects from tepid growth in 2019 also are weighing on growth.

“Last quarter’s soft patch creates unfavorable base effects for 2020 annual growth,” Bhave said. “This is just GDP math. Perhaps more importantly, the weakness in the global economy left little buffer against a major shock. Unfortunately the COVID-19 outbreak is turning out to be that shock.”

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