Global growth: Collapse, Recovery, Slowdown…repeat?

We are sticking to our forecast, first set out in Shape of Recovery: Square Root & Hockey Stick (5th June 2020) that global GDP, which contracted about 7.0% qoq in Q2 (a number flattered by China’s GDP), will rise a record-high 3.0% qoq in Q3.

However, this implies that world GDP will still only be at the level which prevailed three years ago, according to our estimates (see Figure 1).

The key take-away is that global GDP growth collapsed in April, surged and peaked in May-June but lost momentum in July.

We estimate that global growth weakened further in August and was likely very modest in September, partly as result of governments, particularly in Europe, tightening and/or re-introducing targeted lockdown measures, at a regional/state or national level, in the face of rising covid-19 case numbers.

This economic growth pattern, which stands out in the US, Eurozone and UK, is critical when forecasting growth in Q4 and beyond which admittedly remains an exercise in faith as much as rigorous analytical work as conventional economic relationships and wisdoms are still being tested to breaking point.

This caveat aside our core scenario is that global GDP growth will slow in Q4, potentially quite sharply, and not just because of less favourable base-effects.

We think the risk in coming months is tilted towards tighter, not looser lockdown measures which will, all things being equal, curtail economic activity particularly in a service sector which had only started to find its feet.

At the same time some governments have started to unwind fiscal easing measures and financial packages, which will likely weaken already shaky labour markets.

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