The global economy might have bottomed out in April, and embarked on a long and slow recovery, but uncertainty has built up in light of surges in the number of COVID-19 infections in major economies, Fitch Ratings said yesterday.
The ratings agency expects global GDP to fall by 4.6 percent this year, without further downward revisions, following clear evidence of sequential improvements in economic activity.
“Signs of improvements have become clearer over the past month, lending confidence to the view that April marked the trough of the coronavirus-related recession,” Fitch Ratings chief economist Brian Coulton said in a statement.
Signs of recovery have emerged in the form of sharp increases in retail sales in May in the US, the UK and Spain; a rise in US employment; and strengthening purchasing managers’ activity in May and last month, Coulton said.
Daily mobility data confirm an ongoing recovery in visits to retail and recreational venues as lockdown measures have eased, Fitch said.
Construction activity is also reviving relatively quickly after having fallen acutely amid the lockdowns, it said.
Nevertheless, the risk of a resurgence of COVID-19 cases and renewed lockdowns, which could severely interrupt the global recovery, remains high, Coulton said.
Based on Fitch’s latest growth forecasts, China’s recovery continued at a solid pace in May and the economy is likely to expand 1.2 percent this year, up from the 0.7 percent increase the ratings agency previously forecast.
Fitch also upgraded its forecasts for Australia and South Korea, with expected declines of 2.7 percent and 0.9 percent respectively, from contractions of 5 percent and 1.2 percent that it previously forecast.
The ratings agency expects the German economy to shrink by 6.3 percent this year, compared with a previous forecast of a 6.7 percent decline, owing to additional fiscal policy easing.
The economy of the eurozone is expected to contract by 8 percent this year, up slightly from an 8.2 percent decline previously estimated, Fitch said.
The agency stood by its forecast that the US’ GDP would fall 5.6 percent this year, despite improvements in economic data, because the world’s largest economy was forecast as having declined by 9.9 percent in the second quarter and the increase in COVID-19 cases has intensified downside risks.
US Federal Reserve Chairman Jerome Powell has said that even though the US economy started to rebound earlier than expected, the recovery would depend on containing the pandemic and on US government efforts to provide economic support.
“The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus,” Powell said in testimony prepared for a US House of Representatives Committee on Financial Services hearing yesterday. “A full recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities.”
Fitch lowered its forecasts for Brazil, the UK, Mexico, Russia, Turkey, South Africa and Indonesia.
The pandemic has continued to intensify in Brazil and its GDP is forecast to contract 7 percent, down from a previous forecast of 6 percent, despite aggressive policy easing, the agency said.
Additional reporting by AFP
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