We share excerpts from the latest Goldman Report:
Recovery continues apace
Globally, the world economy continues to recover rapidly from the corona crisis, and we estimate that global GDP has now made up over half of the 17% drop seen from mid-January to mid-April. We expect real GDP to contract by 3.4% this year, making 2020 weaker than the year following the Global Financial Crisis. But we believe that global economic activity will continue to rebound as the world learns to live with the virus, assuming virus developments don’t prompt the reimposition of widespread control measures.
Meanwhile, in America
In the US, we expect the recent surge in virus cases will moderately slow the economic recovery in the near term, but expect the recovery to get back on track in September, leaving full-year 2020 growth at -4.6%. We expect the unemployment rate to fall to 9% and core PCE inflation to decline to 0.8% by year-end 2020.
The Fed has employed several crisis-era facilities to support the flow of credit, which we believe are sufficient for now, and we expect the Fed to adopt aggressive outcome-based forward guidance in September. On the fiscal policy front, Congress has so far enacted an additional $2.6trn of fiscal stimulus for 2020, and we expect another $800bn of stimulus to be implemented this year, pushing total fiscal stimulus to 16.5% of GDP in 2020.
Moving across the Atlantic
In the Euro area, we expect the coronavirus outbreak will lead to a 9.4% yoy decline in real GDP in 2020, driven by a large 1H contraction. We expect a sharp rebound in 2H20 with 9.5% and 4.7% qoq non-annualized growth in Q3 and Q4, respectively, though we expect persistent north-south divides.
The ECB has stepped up its pandemic asset purchase program (PEPP), which we think will provide sufficient support to the economy over the coming months, and we expect the full EUR 1.35tn envelope to be used and for net purchases to run until June 2021. We expect additional fiscal support for the countries most affected by the virus in the form of a EUR 600bn Recovery Fund, which we believe will be approved later this year.
In the Middle Kingdom..
In China, we think a faster-than-expected recovery in economic activity in 2Q is likely to be offset by a reluctance to stimulate growth as aggressively in 2H as policymakers balance growth stability and financial stability. We continue to expect full-year GDP growth of 3% in 2020 and see risks to this forecast as tilted slightly to the downside.
WATCH CORONAVIRUS. While the trajectory of the coronavirus and the severity of its economic impact remain highly uncertain, our base case assumes that the path of new infections does not prevent a continued gradual recovery in global economic activity. But we continue to see virus resurgence as the main risk to the economic outlook.
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