In March, Singapore’s Ministry of Trade and Industry (MTI) highlighted that the escalation of the COVID-19 outbreak worldwide had led to a significant deterioration in the external economic environment. Since then, the disruptions to economic activity in major economies around the world have been more severe than expected, according to a new review by the MTI.
In its April review, the IMF projected that the global economy would contract by 3.0 per cent in 2020, with most of the major advanced and emerging economies expected to see full-year recessions.
In the US, GDP is forecast to decline in 2020 on the back of sustained weakness in personal consumption expenditure due to the COVID-19 outbreak. The curtailment of economic activity from stay-at-home orders issued by state governments has triggered large-scale job losses and weakened consumer spending.
Even as the states begin to re-open, consumer spending is unlikely to recover strongly in the near-term given heightened uncertainties in the labor market.
Similarly, the Eurozone economy is expected to be in recession this year, as measures implemented by the Eurozone countries to contain the spread of COVID-19 have taken a heavy toll on economic activity and weakened labor market conditions.
In Asia, China’s economy is projected to slow sharply in 2020 as compared to 2019 due to the lockdowns and restrictions imposed to curb the spread of COVID-19. Private consumption growth is expected to remain weak as households cut back on spending due to uncertainty about the future and subsequent waves of infections, while exports growth is likely to be subdued because of sluggish global demand.
Growth in the key ASEAN economies of Malaysia, Thailand and Indonesia is also expected to be weighed down by weak external demand and domestic consumption as a result of the COVID-19 outbreak.
There remain significant uncertainties in the global economy. First, there is a risk that subsequent waves of infections in major economies such as the US and Eurozone may further disrupt economic activity. In particular, if infections start to rise and strict measures such as lockdowns and movement restrictions are re- imposed, the downturn in these economies could be more severe and prolonged than expected.
Second, a growing perception of diminished fiscal and monetary policy space in many major economies could damage confidence in authorities’ ability to respond to shocks, undermining risk appetite and driving further financial market volatility, with negative spillovers for the broader global economy.