Global IBs Lower Forecasts One After Another... World Economic Growth Rate Struggles to Reach 1% This Year

Morgan Stanley Lowers Global Economic Growth Rate by 0.9%

Bloomberg Economics Cuts China from 5.2% to 1.4%

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Global investment banks (IBs) have forecast that the world economy will struggle to grow even 1% this year due to the impact of the novel coronavirus disease (COVID-19). There is growing consensus that the global economy has effectively entered a recession (great depression) phase because of COVID-19.

According to Bloomberg News on the 17th (local time), investment bank Morgan Stanley projected that the global economic growth rate will be 0.9% this year. While the Institute of International Finance (IIF) lowered its global growth forecast from 2.6% to 1.0% last weekend, most investment banks had predicted growth in the 1-2% range. Morgan Stanley, however, revised its forecast down to the 0% range. Goldman Sachs and credit rating agency Standard & Poor's (S&P) also lowered their global economic growth forecasts to 1.25% and 1-1.5%, respectively. The International Monetary Fund (IMF) considers the global economy to be in recession when growth falls below 2.5%, so by that standard, the current global economy can be interpreted as entering a downturn phase.

The recent downward revisions by investment banks were largely due to the impact of shocks to China's real economy. China's National Bureau of Statistics announced that industrial production in January and February this year decreased by 13.5% compared to the same period last year. This is the first time since 1978 that China's monthly industrial production growth rate has been negative. As China, which has driven the global economy, suffered a major blow from COVID-19, global growth forecasts were also revised downward. S&P initially set China's economic growth forecast at 4.8% for this year but lowered it to 2.7-3.2% in its latest report.

Bloomberg Economics also sharply cut China's economic growth rate from 5.2% to 1.4%. Bloomberg Economics explained, "This is because various key indicators related to economic growth, such as previously released industrial production, retail sales growth rates, and fixed asset investment, showed record contractions," adding, "China's GDP in the first quarter of this year is expected to decline by about 20% compared to the same period last year."

Morgan Stanley analyzed, "Policy responses by governments worldwide, such as quantitative easing and interest rate cuts, will somewhat ease downward economic pressure, but the combination of the spread of COVID-19 and a liquidity crisis in the financial environment will cause significant damage to the global economy."

JP Morgan Chase argued that governments should provide fiscal stimulus measures equivalent to 1-2% of their gross domestic product. Deutsche Bank expressed the opinion that governments must actively intervene to guarantee support for households and businesses.

This content was produced with the assistance of AI translation services.