Global economy at risk of W-shaped trend as COVID-19 cases spike

Global economy at risk of W-shaped trend as COVID-19 cases spike

A research firm warned of a worldwide “double-dip recession” as coronavirus infections in core countries like the United States continue to climb high unprecedently.

The coronavirus pandemic continues to batter the global economy with a massive economic downturn one after another. Yet, with the resurgence and increasing number of COVID-19 infections, it seems like it would continue to slide rather than bounce back.

Recently, the research firm IHS Markit released a new economic outlook in which it underlines the “bounce and fade” global trend for 2020—noting a sharper contraction despite recent financial gains.

Global economic growth to contract 5.5%

As per the IHS Markit’s July World Flash report, this year’s global growth is predicted to hit a 5.5% decline. The data also states that a second downturn could happen later this year or early next year.

However, in 2021, economists Sara Johnson and Nariman Behravesh said that the global economy is expected to rebound by 4.4%. The two economists also end their prediction on a good note, citing that the recession would not be as damaging as what the global economy is experiencing recently.

Global economy at risk of W-shaped trend as COVID-19 cases spike

“Nevertheless, the logic underlying our forecast, of a ‘bounce and fade,’ has not changed. Consumers and businesses remain cautious,” the two economists said, as quoted by CNBC.

The research firm also emphasized the possibility of a W-shaped recovery, given the current data.

Earlier this July, the Bank of America (BoA) said the U.S. is officially in its final, recovering stage and ended its V-shaped rebound. Yet with the nonstop increase of COVID-19 cases lately, the banks’ analysts warned that the country might experience another recession again.

The problem with new coronavirus outbreaks

IHS Markit’s economists also anticipate a decline in consumer sentiment as coronavirus continues to spread in core countries, including the United States.

Weak consumer confidence, according to them, could reverse the global economy’s latest rebound—with a 20% chance of it to happen—and as a result, could increase the possibility of what they describe as a W-shaped economic trend.

“The new wave of infections has reduced the possibility of a V-shaped cycle […] and increased the risk of a double-dip recession (W-shaped cycle),” the economists wrote in the report.

The chance may be low, but as per the University of Michigan’s preliminary index of consumer sentiment, people in the U.S. spend less lately. The report shows June consumer confidence plunged 4.9 to 73.2, coming from last month’s 78.1.

“[Coronavirus] causes continued economic harm, social disruptions, and permanent scarring,” Richard Cutin, director of the survey, said and added that consumer sentiment would likely fall further in the coming months.

To avoid a second downturn, the IHS Markit recommended a new monetary aid. The economists warned that lack or stoppage of relief measures could push another recession.

Images courtesy of Geralt, Geralt/Pixabay

Micky is a news site and does not provide trading, investing, or other financial advice. By using this website, you affirm that you have read and agree to abide by our Terms and Conditions.
Micky readers - you can get a 10% discount on trading fees on FTX and Binance when you sign up using the links above.