Global economy to contract 2.9% in 2020 – Wells Fargo

Analysts at Wells Fargo look for the global economy to contract 2.9% in 2020. They point out the key source of concern for the global economy has shifted to the services sector.    

Key Quotes: 

“The key source of concern for the global economy has shifted to the services sector from the manufacturing sector. One of the most notable themes of 2019 was a relatively solid consumer and services sector (helped by solid employment and wage growth not only in the U.S., but also other major economies including the Eurozone, United Kingdom and Canada, among others). In contrast, industrial output was under pressure for large parts of last year, with persistent global trade tensions weighing on activity.”

“Given the extent of the economic shocks, we now see the global economy entering recession in the first half of this year and expect global GDP to contract by 2.9% in 2020, though we do expect global markets and economic activity to stabilize by late this year.”

“With most major and emerging economies set to fall into recession in 2020, monetary and fiscal policymakers have responded with aggressive stimulus measures. Despite these efforts, we doubt they will be enough to help these economies avoid a deep slump in growth in the near term.”

"Policy responses are impressive and important, and are likely a contributing factor to some recovery in global equities from their recent lows, while they should also lead to an eventual  stabilization in global economic activity—both developments that are important for the currency market outlook. However, given the size of the COVID-19 virus shock we think it is very unlikely these policy measures will be enough to help these economies avoid a sharp contraction in the near-term. As a result we have made some further significant downward revisions to our international growth outlook and now see 2020 GDP declines of 5.5% for the Eurozone, 5.4% for Japan, 4.9% for the United Kingdom and 5.7% for Canada.