OVERVIEW
Global Economic Outlook
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Following the economic collapse across the globe, as key regions went into COVID lockdown, the rebound after reopening was largely instantaneous. We find evidence that economic activity has sprung back powerfully in many sectors, tracing out what qualifies as a V-shaped recovery - to date. However, the initial rebound was the easy part - now comes the hard part, which is keeping the expansion on course at maximum speed, though it will inevitably slow beyond 3Q. This will require continued fiscal and monetary policy support, as well as a sound balance between public health and economic concerns.
Our less-gloomy growth base case is still on track
So far, the evidence on economic growth supports our base case in which the economic slump in 2Q20 would be severe but followed by a powerful rebound in 3Q and solid growth in 4Q. Even though our forecasts are now mostly slightly lower, with the US the great exception, they remain above consensus and the gloomy predictions of many institutions.
Now comes the hard part
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This page contains financial analysis which reflects the opinion of the Cross-Asset Research department of Societe Generale, at the date of its publication. It does not necessarily reflect the views of the other departments of Societe Generale nor the official opinion of the Societe Generale group. This content has been prepared for use by institutional and professional investors and is not intended for retail investors. Investors should consider this report as only a single factor in making their investment decision.
© Societe Generale 2020
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This page contains financial analysis which reflects the opinion of the Cross-Asset Research department of Societe Generale, at the date of its publication. It does not necessarily reflect the views of the other departments of Societe Generale nor the official opinion of the Societe Generale group. This content has been prepared for use by institutional and professional investors and is not intended for retail investors. Investors should consider this report as only a single factor in making their investment decision.
© Societe Generale 2020
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Rebound from Great Trade Meltdown underway
Global trade has collapsed even faster than in the Great Trade Recession of 2008/09, but unlike the U-shaped path back then, all evidence suggests that the early rebound is very much V-shaped. Predictably, the slump was especially severe in services, which will be more sluggish to recover. But recover they will.
Central banks approaching limits of easing
Many central banks continue to ease policy through balance-sheet expansion, but in our base-case scenario additional easing will be quite limited. The basic fact is that, for the most part, the big bazookas have been fired, although asset purchases will keep on giving as the programmes are executed. But new ground is increasingly difficult to break, especially as regards interest rates. Most advanced economies' central banks are at, or very close to, the lower bound.
Our less-gloomy growth
base case is still on track
Large, persistent output
gaps to keep inflation low
So far, the evidence on economic growth supports our base case in which the economic slump in 2Q20 would be severe but followed by a powerful rebound in 3Q and solid growth in 4Q. Even though our forecasts are now mostly slightly lower, with the US the great exception, they remain above consensus and the gloomy predictions of many institutions.
Downside scenario less
probable, less severe
Global trade has collapsed even faster than in the Great Trade Recession of 2008/09, but unlike the U-shaped path back then, all evidence suggests that the early rebound is very much V-shaped. Predictably, the slump was especially severe in services, which will be more sluggish to recover. But recover they will.
Vastly improved oil outlook;
more upside for gold
Many central banks continue to ease policy through balance-sheet expansion, but in our base-case scenario additional easing will be quite limited. The basic fact is that, for the most part, the big bazookas have been fired, although asset purchases will keep on giving as the programmes are executed. But new ground is increasingly difficult to break, especially as regards interest rates. Most advanced economies' central banks are at, or very close to, the lower bound.
Large, persistent output gaps to keep inflation low
Inflation has suddenly become a hot topic, with market-based inflation expectations measures surging since March. However, they merely recovered to their pre-March level. Granted, central banks are now expanding their balance sheets at unprecedented rates, but this has not brought inflation in the past and it's not obvious why it should do so now. More importantly, a large output gap and the secular disinflationary forces should keep inflation low for many years.
Downside scenario less probable, less severe
We have downgraded the probability of the downside scenario to 20%, and kept the upside scenario at 15%. Moreover, with 2Q GDP now in hand, the differences between the three scenarios have narrowed substantially, and we now see the deviations from the base case as broadly symmetrical, arather than twice as large as three months ago.
Vastly improved oil outlook; more upside for gold
The outlook has improved considerably over the last few months and much of the success in reducing the massive volatility and creating the stabilisation of prices is down to OPEC+ being extremely effective in managing supply to balance the market. We see Brent oil climbing steadily by the end of 2021e. As for gold, we recently upgraded our new base case, and then gradually easing as risks dissipate.