US and eurozone likely to be in recession by 2022: SMU survey

Singapore

THE risks to growth for the five biggest economies in the world are expected to be tilted to the downside, with the United States and the eurozone likely to be in recession by 2022, according to a survey of analysts by the Singapore Management University (SMU) released on Wednesday.

The first edition of the Big5 survey, which was released by the Sim Kee Boon Institute for Financial Economics (SKBI) at SMU, gathers participants' sentiments and projections for the economies of China, Europe, India, Japan and the US.

The eight Singapore-based participants in its inaugural survey are Bank of Singapore, DBS Group, GIC, ING Bank, Moody's Investors Service, TD Securities, UBS and United Overseas Bank Group.

Six of the eight participants are expecting the eurozone to enter into a recession by 2021, while only three in eight see the same for the US.

However, seven forecast that both the US and the eurozone will be in recession by 2022.

"There are questions from this - if the US, the euro area and Japan happen to slip into recession by 2022, is it possible for the rest of the world and similarly China and India to avoid that? This is one of the questions that jumps out," Thomas Lam, principal researcher of SKBI and one of the developers of the Big5 survey, said.

In contrast, only two participants foresee a "sharp slowdown" in China and India by 2021.

The outlook for both countries remain similar in 2022, with only three expecting a "sharp slowdown" for China, and no change in expectation for India.

Professor Dave Fernandez, director of SKBI and co-developer of the Big5 survey, noted that forecasters in North America and Europe tend to be more pessimistic about the risk of a sharp slowdown in China, whereas "it is hard to get people here to believe that China could experience a sharp slowdown".

"It's one of the aspects of the survey . . . there is a skew from where you sit," Prof Fernandez added.

The survey also captures participants' real GDP growth forecast for the five economies in 2020: China is expected to see a mean GDP growth of 5.9 per cent; the eurozone, 1.1 per cent; India, 6.9 per cent; Japan, 0.3 per cent; and the US, 1.5 per cent.

In terms of headline inflation, the survey developers noted that participants seem to lean toward a more balanced risk assessment from 2019 through 2021, with the exception of the eurozone, where a modest majority view greater disinflationary risks in 2019 and 2020.

The survey also captures participants' expectations of how regulators will adjust both fiscal and monetary policies.

Mr Lam noted that there appears to be a greater inclination to use monetary policy for the next two years, rather than fiscal policy, as a first line of defence.