Global recession in 2020 now unavoidable

In light of recent developments in connection with coronavirus, Union Investment’s economists have made significant downward corrections to their growth forecasts. This decision was based on the fact that the spread of the pandemic continues to accelerate rapidly and that many countries have implemented drastic countermeasures.

Our economic growth outlook is based on the following assumptions:

  • Public life has largely been suspended until mid-April in many industrialised economies (especially in Europe and the US), which should contain the spread of the disease.

  • Economic growth will decline steeply in the spring of 2020 (first and second quarter).

  • A ‘conventional’ recession will ensue in the wake of this, caused by low levels of investment and rising unemployment.

  • Stimulus measures by governments should mitigate adverse second-round effects. In 2021, the economy should start to recover.

  • This is not a crisis caused by systemic issues in the financial sector.

GDP in the eurozone will fall significantly

The gross domestic product (GDP) of the European Monetary Union (EMU) can be expected to decline by 3.6 per cent in 2020 (previous estimate: growth at a rate of 0.8 per cent). Italy, the country currently reporting the highest infection levels outside China, is likely to be hit particularly hard. We also anticipate a recession in Germany. In terms of timing, the economy will probably be weak in the first quarter and especially in the second quarter. Then, conditions should gradually start to stabilise over the second half of the year. We expect growth rates to return to positive territory in 2021.

US growth collapses, albeit from a high level

In the US, the economy will probably suffer a further significant slowdown in the second quarter. The US economy is more vulnerable to a collapse in consumer spending than the eurozone, whereas Europe is more dependent on global trade. At the same time, growth in the US had been very robust until recently. All in all, we therefore expect GDP to decline by 1.9 per cent in 2020 (previous estimate: growth of 1.6 per cent). The US economy should also see a return to growth in 2021.

Suspension of public life primarily affects the real economy

There are certain parallels between the current situation and the financial crisis of 2008, but also crucial differences. Back then, it was mainly the financial sector that froze up, whereas the main casualty now is the real economy. Due to the widespread suspension of public life, large parts of the economy are grinding to a halt. This can also give rise to potential risks for the financial sector, for example in the form of a liquidity squeeze or uncontrolled company insolvencies. But based on the quick, decisive and broadly appropriate countermeasures taken by central banks and governments around the world, this risk has been addressed effectively in our opinion. We therefore expect to see a ‘conventional’ recession, but not a systemic crisis in the financial sector.

Monetary and fiscal policy measures not enough to bring about a recovery

However, monetary and fiscal stimulus measures alone will not be enough to turn the economy around. First, a slowdown in the spread of the pandemic or a degree of success in the battle against it needs to materialise. Only then will the economy be able to gradually revive and pick up momentum. From that point onwards, the stimulus measures implemented by governments should begin to fully bite and support the recovery process.

Capital market outlook: Remaining volatile in the near term, but constructive in the medium to long term

For the capital markets, this scenario means that volatility will remain high in the near term. As long as new infections continue to rise at an increasing rate, any trend reversal in the equity or corporate bond markets seems unlikely. But the medium- and long-term outlook remains constructive. Once the economy returns to its original growth path, previous investment trends (e.g. the low-interest-rate environment) should continue to apply. On this basis, we regard it as advisable not to make rushed or alarmist adjustments to long-term investment strategies, despite the current market conditions.


As at 17 March 2020