Market Overview

15 April 2020

Developed Economies May Suffer the Most This Time

The International Monetary fund (IMF) forecasted that the global economy would decline sharply by three % in 2020. The decline is much steeper than in 2009, which was a time of Global financial crisis when it fell by 2.3%. If this forecast is correct, the economy may have a hard landing, the hardest since World War II.

It may be worth remembering that the IMF forecasted a growth of 3.3% of the world's GDP in January 2020 when the coronavirus already broke out in mainland China.

Recent cataclysms drastically differ from the standard cyclical crisis, even the one suffered in 2008-2009. The nature of the current circumstances is of another kind. There were no such artificial shrinkage of the demand during the global financial crisis and there was also no forced reduction of business activity due to quarantine measures. The revival of the demand and stimulating business activity is the keystone to prevent the slump in production. Besides, the restriction or even suspension of communications disrupts global supply chains, goods, services and labour force cyclical turnovers.

The damage to developed economies which shape global production, financial and trade flows in a decisive share would likely be more significant in terms of the Gross Domestic Product (GDP) absolute figures. The United States and the European Union are the first to be hit badly. They comprise major financial, trade flows and production. So, their vulnerabilities have become the extension of advantages. The disruption of economic communications and dramatic fall of the demand with these territories is multiplied by the same affect worldwide. The United States contribution to the world GDP is 15.1%, the Eurozone is responsible for 11% of the global GDP, according to the IMF. And those states are the most affected by the virus regarding the number of cases and deaths. That is the reason their economies are the ones with the utmost damage.

IMS suggests the overall GDP of developed countries would contract by 6.1% in 2020 and the emerging countries will lose only 1%. China and India according to the IMF, will remain in the positive zone regarding economic growth this year.


Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Mark Goichmann
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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