The International Monetary Fund said the coronavirus pandemic causes a much sharper recession than initially expected and the recovery has a long way to go.
As per IMF’s global economic forecasts for 2020, the global GDP will contract by 4.9% this year, reversing April’s estimate for 3%. IMF expects the US economy to shrink by 8%, while output across the Eurozone may decline by 10.2%.
The outlook is slightly rosier than that of the World Bank which has forecast that global GDP would shrink by 5.2%. The OECD predicted a 6% contraction before rebounding in 2021.
On the trade war front, Trump is suddenly boosting trade fights with two of the nation’s biggest trading partners. His administration threatens to slap tariffs on goods from Europe and reimpose tariffs on aluminum imports from Canada. But these tariffs would only add to the vast uncertainty in the world economy right now.
Further, the World Trade Organization said that global trade in goods was set for a record fall this year.
On the Brexit saga, little progress has been made in agreeing EU-Britain’s future trading relationship.
Coronavirus cases worldwide passed 10 million, with more than 500,000 deaths, as parts of the world reconsidered their reopenings. Virus surge raised worries that some reopening plans will be delayed for longer.
Elsewhere, profits at China’s industrial firms rose for the first time in six months in May. Hopes for a V-shaped recovery, which had been all but abandoned following the April numbers, might be revived.START TRADING
LQDFXperts – Sharper recession on top of slower recovery
The relentless spread of the coronavirus made investors question their optimism on the global economy and benefited safe harbour assets.
On the week, the euro posted weekly gains of 0.4% against the dollar. The common currency continues to show movement in both directions, unable to form a trend. The US Dollar is on track for its biggest monthly fall since December. The euro is set to wrap up its best two months against the dollar in a year and a half. Hopes for a united EU response to the virus propel the single currency ahead 2.5% since the beginning of May.
GBP/USD was unchanged last week. Sterling showed one of the worst monthly performance among major currencies in June. The British currency recovered 0.5% versus the dollar month-to-date but lagged the broader market. The British economy is in recession and the road to recovery will be a long one. The pound is down 6.8% this year.
For a second straight week, Dollar/yen showed little movement. The Japanese economy has not looked all that strong, but the yen performed well against the dollar. The pair dropped below the 107 level this week for the first time since early May.
AUD/USD showed slight change for a second straight week. The Australian dollar has jumped almost 12% in the second quarter. But the Aussie has shown limited movement in the past two weeks.
The USD/CAD remained almost unchanged for a second consecutive week. The Canadian dollar lost close to 5% in March but has since recovered much of these losses.
The week ahead – Economic data improve but recovery slows
It is an important week for U.S. data with the ISM manufacturing index on Wednesday and payrolls on Thursday. Federal Reserve Chair Jerome Powell is also testifying on Tuesday. Fears of a second wave of the pandemic take the shine off improving economic data.
- On Monday (29.06) investors are looking to eurozone confidence data and German inflation figures for the latest gauge of the region’s economic health.
- Besides Fed Chair’s testimony on Tuesday (30.06), investors will also focus on Chinese Manufacturing PMI, UK Final GDP and Eurozone Inflation. The figures may show if encouraging signs of recovery from May can be sustained.
- On Wednesday (01.07) investors expect the release of US ISM Manufacturing PMI. The index continues to lose ground and has been in contraction territory since February. Experts expect it to rise to 49.0 in the June release. On the same day, the Fed will publish the FOMC Meeting Minutes for June where Fed tried to keep financial conditions easy.
- On Thursday (02.07) investors are braced for the US Non-Farm Payrolls. After a gain of 2.5 million jobs in May, analysts are projecting a gain of 3.0 million in June. However, wage growth may decline by 0.5%. The unemployment rate fell to 13.5% in May and will probably drop to 12.5% in June.
Follow this week’s economic calendar.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, CNBC, BBC, The Guardian