t’s not just the markets that are in freefall, so are
crushed revised estimates of global economic growth.
Overnight Bank of America has taken the axe to its GDP growth forecasts, and in a note titled “Nowhere to Hide”, the bank’s chief economist Ethan Harris, writes that “we have taken another slice out of our 2020 global GDP forecast. The downward revisions are broad based, and we now expect just 2.8% global growth this year (Table 1). This would be the first sub-3% print since the financial crisis.”
Explaining why it’s “Gloom but not doom”, Harris writes that last month he cut his 2020 China growth forecast from 5.8% to 5.6%, “but left other major economies unchanged on the expectation of a brief and contained disruption. Our previous base case now looks increasingly like a best-case scenario.” However, with the V-shaped recovery no longer looking realistic, BofA’s new forecasts “account for a more “U-shaped” growth recovery, and a greater permanent loss in output.”
Explaining further, BofA writes that the weakness in the global economy is being driven by three factors.
Not surprisingly, Harris cautions that “while the distribution of risks around our forecasts is now more balanced, we think the risks are still skewed to the downside.” The reason for that, is that his forecasts “do not incorporate a global pandemic that would basically shut down economic activity in many major cities. Accordingly, we are also not calling for a global recession (i.e., sub-2% global growth).” In other words, BofA’s global recession forecast will depend on whether China can reboot its economy, something it has been scrambling to do by fabricating low infection numbers and manipulating its Coronavirus statistics.
The risk, of course, is that in its panicked scramble to restart the economy, Beijing launches a second wave of infections, destroys what little confidence the people have in the communist party, and terminally cripples its – and the global – economy.