Despite tender signs of improvement at the beginning of the year, current expectations for global economic growth is being dragged down by the carry-over of weak 4Q19 data in several key economies, along with the strong impact of the rapidly spreading outbreak of Covid-19. Previously forecast growth of 3.0% for 2020 global GDP is now therefore revised down to 2.4% (Graph 1) .

Furthermore, the impact of Covid-19 is exacerbated by high global debt levels, the ongoing general slowdown in world trade as well as challenges in manufacturing, impacted by slowing capital expenditure in various key economies and by a globally decelerating automotive industry. The underlying key-assumption for the forecast is that while China will see a sharp deceleration in 1Q20 and to a lesser extent in 2Q20, a recovery in the country is projected to take hold in 2H20, supported by government-led stimulus measures. However, the impact of Covid-19 related developments outside China will continue well into 2Q20, especially in Asia, the Euro-zone, US and Middle East. Therefore, all these regions are forecast to see a slowdown through 2Q20, recovering only towards the second half of 3Q20. By 4Q20 global activity is assumed to have normalized.

Depending on future developments, further downside risk remains. While the Covid-19 related news dominates markets, additional challenges such as Brexit, geopolitical tensions, and significant fiscal challenges in selective economies continue. On the other hand, economic performance in the US, improving global trade relations in combination with fiscal stimulus measures in China, Japan, Italy and other economies, as well as ongoing accommodative monetary policies, may offset some of the current downside. While most OECD economies were revised down over the past weeks to now show growth of 1.2% for the region in 2020, the US economy is still holding up better at a forecast 1.6%. Monetary policies by major OECD central banks are also expected to remain accommodative to counterbalance some of the downsidemomentum. Nevertheless, Euro-zone growth levels will come down more significantly to 0.6%. This assumes that Italy will face a recession in 2020, after drastic measures to fight Covid-19 were implemented most recently. Japan’s 2020 growth was revised down to -0.2%, following weak 4Q19 growth and Covid-19 contagion.

In the emerging economies, China is forecast to be further impacted by the ongoing Covid-19-related developments in 1H20, leading to 5.0% growth for the year. India’s 2020 GDP growth was revised down to 5.2%, compared to forecasts of more than 6% in the previous months, mainly due to ongoing domestic challenges and a worsening external environment. Brazil’s 2020 GDP growth is forecast at 1.6%, impacted by expected slowing external trade. Russia’s 2020 growth is forecast at 0.8% for 2020, due to the decline in commodity export markets. The tremendous impact that the Covid-19 outbreak had so far on economic growth has significantly impacted oil demand growth in 1Q20 and therefore led to a downward revision to show less than 0.1 mb/d growth for the entire year 2020. Non-OPEC supply is now forecast to grow by 1.8 mb/d in 2020, a downward revision of 0.5 mb/d, mainly reflecting a further slowdown in US tight oil. The impact of the Covid-19 related developments on an already fragile global economic situation is quite challenging and requires coordinated global policy action of all market participants.
Source: OPEC