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A bleak economic picture

As a result of the coronavirus outbreak, the Economist Intelligence Unit (EIU) has revised its growth forecasts for countries across the world.

Nearly all G20 nations, with the exception of China, India and Indonesia, will experience a recession this year, according to EIU’s latest report.

“The global economic picture is looking bleak, with recessions in almost every developed economy across the world,” said Agathe Demarais, the EIU’s global forecasting director.

“We assume that there will be a recovery in the second half of the year, but downside risks to this baseline scenario are extremely high, as the emergence of second, or third waves of the epidemic would sink growth further. At this stage, it is also hard to see an exit strategy from the lockdowns, which means that uncertainty will remain high. Finally, the combination of lower fiscal revenues, and higher public spending, will put many countries on the brink of a debt crisis.”

The eurozone will be one of the hardest hit regions, posting a full-year recession of 5.9 percent.

In Germany, the country’s export-orientated manufacturing sector is particularly exposed to supply chain disruption and weak global demand. This means that the recovery the EIU expects in the second half of 2020 for other eurozone countries will materialise much more slowly here.

The USA, meanwhile, will contract by 2.8 percent this year, according to the EIU.

Growth prospects are particularly poor across Latin America too. Argentina, Brazil, and Mexico will all register recessions this year, said the EIU.

Mexico is closely reliant on trends in the USA, and the EIU’s expectation that US GDP growth will drop puts a strain on Mexico’s economic prospects. Across the region, business disruption will cause inward foreign direct investment (FDI) to fall sharply. This will be severely damaging in a region where domestic savings are weak and FDI accounts for 3 percent of GDP and 15 percent of total fixed investment.

www.eiu.com

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