20 to 26 April: Gauging the state of the world economy in a pandemic

As the coronavirus outbreak caused outages in factories and reduced household and business spending globally, it is probably not too surprising that the CPB’s World Trade Monitor reported global trade volumes declining 2.6% YoY and industrial production falling 3.9% YoY in February. Despite the very sharp decline in volumes, the full extent of the coronavirus’ adverse impact is still not reflected in these figures. As opposed to hard data (such as trade or industrial activity), PMIs do not lag as much. April composite PMIs in developed economies fell to the lowest levels in the history of the respective series: to 12.9 in the UK, 13.5 in the Eurozone, 27.4 in the US and 27.8 in Japan. Consequently, the extent of the weakness in economic activity exceeded the decline seen during the GFC in 2008-09, according to the composite PMIs.

Looking forward, three systemically important central banks hold policy meetings this week — the Federal Reserve, the Bank of Japan and the European Central Bank. Investors will be keen to know how central bankers view the economic outlook and, especially, the future of existing and additional policy actions. Furthermore, we will get the first glimpse of the 1Q20 GDP data from the US. According to the median market estimate (at the time of writing on Monday), the US’ economy could have shrunk 3.9% on an annualised basis, which would not be as dreadful as the 8.4% contraction in 4Q08. However, the sudden economic stop brought about by the coronavirus is an unprecedented phenomenon, which means that nobody really knows how to produce a reliable estimate. This extreme degree of uncertainty is also reflected by the unusually wide range of GDP growth forecasts between -1% and -10%.

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