The evolution of COVID-19 remains the biggest risk to the global economic outlook. In particular, how governments respond to the second wave of the virus now adding to case counts in many countries, the extent to which business and household behaviour continues to evolve, and the nature of government supports, will determine how quickly world economies can rebound, Scotiabank economists say.
“The sharp rise in COVID-19 cases is leading to a modest scaling-back of growth forecasts owing to markdown of near-term economic prospects,” Jean-François Perrault, Scotiabank’s Senior Vice-President and Chief Economist said in the Bank’s most recent Global Outlook report. However, Perrault contends that a phase-1-like collapse of economic activity will be avoided with response of governments this time around being much more targeted.
That sentiment is echoed by Marc Desormeaux, Scotiabank’s Senior Economist, in the Provincial Outlook report. As he noted, “all else equal, successful virus containment translates into better economic prospects.”
Scotiabank’s forecast is for global GDP to fall 4.1% in 2020 and rebound 5.4% in 2021, compared with its previous forecast of a 3.9% decline this year and a rebound of 5.6% in 2021.
Despite unemployment rates remaining well above pre-COVID levels, especially among low-wage service sector employees, governments’ fiscal support is keeping the global economy going, according to global indicators of household spending, which show a rebound in consumption. Any premature withdrawal of support, as seems to be occurring in the US, will slow the pace at which the global economy rebounds next year, Scotiabank Economics notes.
Canada’s economy seems to be recovering faster than that of the US, with the number of full-time employees returning to the workforce in Canada outpacing their counterparts south of the border. This almost certainly reflects Canada’s more effective approach to managing the virus and its public health and economic consequences, Perrault said in his report.
The tourism sector has felt the brunt of lockdowns, as reflected in lost jobs and business closures across the food and accommodations services sector. Reduced travel further softened prices in the oil and gas sector, compounding the effects of ongoing supply-demand imbalances. While retail in general took a hit during the first wave, grocery stores were the bright spot, as they benefitted from rising demand and prices. Financial and professional, scientific and technical services all performed well relative to other sectors because of the ability to work from home.
However, Ontario and Quebec, grappling with record-high daily case numbers, have announced targeted lockdown measures, that could move to tighter restrictions if infection rates are not brought under control again, the Provincial Outlook notes.
Another factor that has the potential to substantially affect the forecast is the outcome of the US election. Perrault sees a Joe Biden win and Republican Senate as a negative for the global outlook, particularly because it could hold up any extension of employment benefits. Conversely, a Biden win and a Democratic Senate would likely be much more supportive of enhanced fiscal support.
Of course, the global outlook could see upside potential sooner if there are quicker-than-anticipated advances with respect to COVID-19 vaccine or treatment development and distribution.
To read the full Scotiabank Economics Global Outlook report, click here.
To access Scotiabank’s Provincial Outlook, click here.
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