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Grim economic forecasts announced as countries lockdown

Open-access content Tuesday 24th March 2020 — updated 11.42am, Tuesday 5th May 2020
Authors
CHRIS SEEKINGS

A sharp recession is imminent in the vast majority of developed and emerging economies as the deadly coronavirus forces businesses to shut down across the world.

2

That is the latest warning from financial services company Allianz, which has revised down its global economic growth forecast from 2.4% to 0.8% for this year.

The firm expects global GDP to reach a trough of -15% in the second quarter, equal to the damage recorded over 2008-2009 cumulatively following the financial crash.

Growth of 0.5% is forecast in the US for this year, and a contraction of -1.8% in the eurozone and Germany, with 65 million employees across the EU at risk of needing assistance.

Moreover, the firm expects insolvencies to increase by 13% worldwide in 2020.

Allianz chief economist, Ludovic Subran, said that the world will be "a different place" once the coronavirus crisis has passed.

"COVID-19 will certainly change how we see investments in health, define inclusive capitalism, China's soft power; globalisation, the fight against climate change, and maybe how we save for life events," he added.

UK prime minister Boris Johnson last night unveiled similar lockdown measures taken worldwide in response to coronavirus, with non-essential businesses closing down and stronger enforcement of social distancing announced.

Assuming containment measures are successful, Allianz expects a "U-shaped recovery" in global economic activity in the second half of 2020 and 2021.

However, a recession could run into next year if there is a protracted economic downturn due to a 12-18 month health crisis, with possible reinfection, and policy mistakes are made, leading to a "L-shaped recovery".

Meanwhile, Nigel Green, founder of the deVere Group, believes that investors are now actively seeking "new world" sectors and companies as people adjust to life with coronavirus.

"This is evidenced by the tech-heavy Nasdaq Composite Index, which has done well where other global indices have faltered," he said.

"New industries will come into their own and, as ever, there will be winners and losers. This will mean job losses in some sectors and huge - possibly unprecedented - job and investment opportunities in others."

 

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