While the consumption of non-essential items like sporting goods is declining in Europe, the U.S. and some other parts of the world hit by the coronavirus pandemic, store traffic is picking up in China after having fallen by as much as 80 percent at the peak of the outbreak, according to a Bloomberg article. The news agency noted that local purchases could be spurred on by “revenge spending” due to pent-up demand, but the forecast is debatable. Adidas executives told investors that there will likely be instead a return to normal consumption levels. Chinese consumers represent more than a third of the luxury industry’s sales.
Anyhow, the spreading of the pandemic is widely expected to topple the global economy into a recession this year, as reflected in the recent deep declines in stock exchanges worldwide. Standard & Poor’s estimates that the global gross domestic product (GDP) will only grow by 1.0-1.5 percent, but indicates that the outcome could be worse as the risks remain firmly on the downside. According to the International Monetary Fund, the global economy is in recession if it rises by less than 3 percent a year because economic expansion then lags demographic growth.
The initial data from China suggest that its economy was hit far harder than projected, though a tentative stabilization has begun, said S&P’s global chief economist, Paul Gruenwald. “Europe and the United States are following a similar path, as increasing restrictions on person-to-person contacts presage a demand collapse that will take activity sharply lower in the second quarter before a recovery begins later in the year,” he added. He noted that “as China has shown, restrictions could be lifted more slowly than originally thought as public health concerns persist.”
For the time being, there is still some hope that the recession will be short-lived. Goldman Sachs predicts that the GDP of the euro area could fall by 1.7 percent this year, then recover strongly in 2021 with growth that could reach 3.5 percent.
The decline is likely be extremely violent in Italy, where the GDP may plummet by almost 6 percent in the first half and decline by 3.4 percent for the whole of 2020, according to Goldman Sachs. But then, in 2021, the country’s economic growth could reach 3.5 percent, in line with that of the whole eurozone.
The bank expects Germany’s GDP to fall by 1.9 percent in 2020 and increase by 3.6 percent in 2021, the French GDP to slip by 0.9 percent this year and grow by 3.0 percent in 2021, while Spain’s GDP is seen contracting by 1.3 percent this year and expanding by 4.3 percent in 2021.
Deutsche Bank feels that the recession will be short but extremely violent. It estimates that the Chinese GDP fell by 31.7 percent on an annualized basis in the first quarter and will rise by 34.0 percent in the second quarter, finishing the year with a growth of 4.5 percent, compared with the recent annual increases of more than 6 percent.
For the second quarter, the German bank is projecting drops in the GDP of 23.6 percent in the eurozone and 12.9 percent in the U.S. However, it adds, the economies should pick up again in the second part of the year, leading the GDP for the whole year to decline by an estimated 2.9 percent in the euro area and by 1.0 percent in the U.S.