Global economy could take 2 to 3 years to recover from Covid-19: IHS Markit

THE global economy could see an "unusually slow" Covid-19 recovery, taking two to three years before it reaches pre-coronavirus levels, according to a research note from IHS Markit released on Tuesday.

Its chief economist Nariman Behravesh and executive director for global economics Sara Johnson said the global economy is now in the midst of its worst downturn since the 1930s.

They projected real global gross domestic product (GDP) would fall 5.5 per cent this year - more than triple the economic contraction in the aftermath of the Global Financial Crisis in 2009.

Based on a comparison with the 33.8 per cent quarter on quarter drop in China's real GDP in the first quarter of this year - a record annual rate - IHS Markit estimated the US's real GDP to plummet a record 36.5 per cent or more in the second quarter of this year, recovering modestly in subsequent quarters.

The forecasts are based on assumptions that the the world will inch towards "normalcy" over the coming year, with new global infections peaking by late summer, lockdowns gradually easing through summer and autumn, and an effective and widely offered Covid-19 vaccine not being available until late 2021 or early 2022, the research note said.

Calling the recent flare up of cases and re-imposition of movement restrictions in South Korea and China "worrisome", Mr Behravesh and Ms Johnson said they expected the the post-pandemic recovery to be "unusually slow".

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They cited factors such as a fear of crowds postponing recovery for the travel and leisure industries, and a "tidal wave" of bankruptcies among small and large industries that would make restarting the manufacturing sector more challenging than in typical recoveries.

The financial damage to households and businesses as a result of the pandemic would also substantially delay a return to old spending levels, they added.

"Given the unrelentingly bad news and data on Covid-19, and the economic carnage, there is high likelihood that the near-term outlook will get worse before it gets better," the researchers said.

"The fastest we can expect output in key economies to return to pre-pandemic levels is early 2022 - in many economies the recovery could be even more prolonged."

The researchers identified China as the sole exception to the trend, as its Covid-19 breakout had occurred earlier than in the rest of the world, with economic recovery now under way.

However, they warned that based on Chinese economic data, the hardest-hit economies could see "square-root-sign recovery", where growth snaps back briefly before fading.

"In Wuhan, while most factories are up and running, restaurants are mostly empty. More broadly, the Caixin China General Services Purchasing Managers' Index... remains in contraction territory," the researchers said. "The pattern in other economies, which are opening early, is similar - consumers remain ultra cautious."