A key topic at the recent Virtual Market Outlook Workshop presented by the Valve Manufacturer’s Association and Hydraulic Institute was the global recovery in response to COVID-19.
Sara Johnson, executive director of global economics with IHS Markit, spoke on the global economy’s sharp downturn following the big hit from the virus earlier this spring, and the paths to recovery. Some regions are on a quicker path than others.
Johnson said during her presentation that recovery is underway, but IHS Markit expects world gross domestic product (GDP) to fall 5.5 percent this year, which is the steepest decline since 1946, which marked the end of World War II.
“This recession is unique in that it’s encompassing all the emerging and developing countries as well as the major industrial countries,” Johnson said.
The global economy is expected to expand 4.4 percent in 2021, Johnson said, a little under 3.8 percent in 2022, with global real GDP returning to its previous peak in the first half of 2022.
High debt burden and deflation risks are the biggest concerns in Europe, especially Italy, Spain and the United Kingdom
The expectation is that production will be down 7.7 percent globally, somewhat milder than during great global financial crisis of 2008 and 2009. There will likely be a sharp decline in the volume of world trade with a contraction of 12 percent this year. It was 10 percent in 2009.
“This is a short and deep recession with a more gradual, protracted recovery,” Johnson said.
The global economy is back on a better path as far as the purchasing manager’s index (PMI) is concerned. The expectation is that the virus will take different paths in different countries, but with less stringent lockdowns because of better capacity from health care systems. The assumption is more effective meaningful treatment by the second quarter of 2021 with a vaccine widely available in most developed and emerging markets by mid-2021.
Here are how Johnson and IHS Markit forecast global recovery among regions:
United States: GDP plunged an estimated 15.6 percent in February to April but rebounded 4.2 percent in May. The recession was the briefest on record, as most states began a recovery in April or May, but more infections in June and July pushed some back. The expectation is that the economy will not regain full employment until 2024. Low energy prices and high unemployment will restrain wages.
Latin America: There are new cases in Latin America, including Mexico, Brazil, Peru, Argentina, Chile and Colombia. Argentina’s economy seems to be hit the hardest, with real GDP expected to fall 12.5 percent in 2020. Export earnings were hurt by the recession.
Western Europe: The recovery from deep COVID-19 issues will take several years. The GDP featured double-digit declines in the U.K., Italy, Spain, France and Greece. Increases in debt burdens threaten to weigh on long-term growth prospects along with challenging demographics and poor productivity performances.
Asia: Asia-Pacific will lead the recovery, and success in maintaining COVID-19 will determine how fast. It is faster in mainland China, Vietnam, Taiwan, Australia and New Zealand, but new cases rising sharply in South Asia and Indonesia are limiting potential recovery. Recovery will be led by private consumption and government investment in infrastructure and public works.
IHS Markit forecast risks include returning to lockdowns and too much caution among consumers, which could push full recovery back two or three years
Long-term implications include:
- widespread acceleration of digital trends
- greater substitution of capital for labor across manufacturing and service industries
- permanent changes in business travel patterns
- a shift in pattern of globalization from goods trade to data trade
- more 3D printing
- slowdown in process of urbanization and more working from home
- less reliance on public transportation
- permanent losses in potential GDP from reduced capital formation and labor force participation along with capital obsolescence