Fitch Ratings' outlook for global GDP in aggregate remains on track with its June Global Economic Outlook (GEO) forecast after the recent bout of official 2Q20 GDP releases. However, China's recovery is proving stronger, while the downturn in Europe has been deeper than expected.
Real GDP in the US, China and eurozone (EZ) combined (which together account for two-thirds of global GDP) declined by 4.1% qoq in 2Q20 compared with a forecast fall of 4.3% in our June 2020 GEO. A much better than expected outturn in China (at +11.5% qoq vs. +8.3% in the GEO) and a somewhat less severe outcome in the US (at -9.5% vs. -9.9% (not annualised)) slightly outweighed a significantly deeper than anticipated fall in the EZ (at -12.1% vs. -8.9%).
GDP data for 2Q20 have yet to be released for many of the larger economies covered in the GEO, including Japan, the UK and most major emerging markets, but the releases so far suggest our June GEO forecast of a 4.6% decline in world GDP in 2020 looks on track.
The releases also provide some valuable insights into the current extremely unusual economic environment, as discussed in our new Economics Dashboard. The strength of China's rebound highlights the importance of coronavirus containment in speeding up the post-lockdown pace of economic recovery. The relative size of the particularly hard-hit hospitality sector also looks to have been very important, as reflected in a large negative 2Q20 surprise in Spain where accommodation and food services account for a high share of total GDP.
The falls in GDP in 2Q20 were also closely correlated with the decline in visits to retail and recreation venues, measured using daily Google Mobility data. The mobility shock was larger in the EZ than in the US in 2Q20, reflecting more stringent and/or longer lockdowns in France, Italy and Spain. However, EZ mobility recovered sharply in June.
"The recent surge in coronavirus cases in the US has seen daily retail mobility data flatten off from mid-June, but a plateau in consumption in July and August would still be consistent with our June GEO forecast of a 4.6% qoq (non-annualised) rise in US GDP in 3Q20," said Brian Coulton, Chief Economist at Fitch Ratings.
The recovery in mobility in the UK lagged that in the EZ through June, and weak official GDP data for May suggests that 2Q20 GDP could decline by more than the 14.8% forecast in the June GEO. The recent rise in new coronavirus cases in Spain could also weigh on its 3Q20 recovery.
We have recently revised up our China 2020 GDP forecast to 2.7% from 1.2% in June but downward revisions to our 2020 EZ GDP forecast of -8.0% are likely in the next GEO, to be published in early September.
(Fitch Ratings)