Globally, a once-healthy economic growth outlook has been revised down sharply due to the outbreak and spread of Covid-19. This coronavirus will negatively affect global and domestic economic growth through the first half of 2020, and potentially longer depending on steps taken to limit its spread.
The Covid-19 outbreak will have a major health and social impact, as well as forecasting global and domestic activity presents significant uncertainty. The Chinese economy, where the virus originated, is expected to contract by 1% in the first half of 2020. Economic activity is likely to also contract in the United States and Europe as governments there take actions to contain the spread of the virus.
In response to all these developments, the US Federal Reserve, alongside other central banks, took various steps to provide further monetary accommodation. Additional steps have also been taken to provide liquidity and ensure the smooth functioning of markets. Some governments have taken fiscal measures to mitigate the economic effects of the virus.
The domestic economic outlook remains fragile. At this point, Covid-19 is likely to result in weaker demand for exports and domestic goods and services, but its impact on the economy could be partly offset by lower oil prices. One can also expect disruptions to supply chains and to normal business operations. It is expected that the economy will contract by 0.2% in 2020. GDP growth is expected to rise to 1.0% in 2021 and to 1.6% in 2022.
Apart from the Covid-19 global pandemic, electricity supply constraints and other sources of uncertainty are expected to keep economic activity muted. Public sector investment has declined and job creation has slowed. Business and household confidence have weakened further. Government and household consumption, and private investment, however, continue to grow, albeit modestly. While export growth is expected to decelerate further in the near term, prices remain high for some export commodities, and could be supported by an early resumption in China’s economic activity.
There is without doubt a hard time ahead, but one needs to look for opportunities in this dark scenario and make the best of a bad time. Should you wish to consult on the way forward please do not hesitate to contact us for professional advice in this regard.
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