The COVID-19 pandemic is having a punishing impact
US, Global economies brace for impact
The COVID-19 pandemic is having a punishing impact on national economies around the world. Here in the U.S., 2020 was expected to continue the highly robust pace of economic growth of 2017-19. Free from the weight of our recent trade disputes with China, Canada and Mexico – our largest trading partners – the American economy was set to soar. In January and February, many analysts were projecting a 2020 economic growth rate of 3-3.5%, the strongest pace of growth in 15 years. Oh, how times have changed.
Two weeks ago, the growth rate for the U.S. economy in the January-March first quarter was reported at -4.8%. It was the first time since 2014 that U.S. economic growth had actually declined in any one quarter. The first quarter’s negative growth rate illustrates the impact government-mandated closures and quarantines – which started in the last few weeks of March – are having on consumers, businesses, trade, manufacturing and other components of the U.S. economy.
The path to economic recovery is laden with unknowns. Will the growth rate of new COVID-19 cases continue to decline? When can businesses start to reopen? When can employees go back to work? When will quarantines on citizens be lifted? All essential questions, for which we have few answers. Consequently, many economic factors have yet to be fully quantified, including the loss of economic activity, business closures, layoffs, disruptions to supply chains and levels of consumer/business confidence.
But here we are in May, approaching the halfway point of the April-June second quarter, and most of the country remains on lockdown. Even though some parts of the country are starting to gradually reopen, the damage has already been done. For the second quarter, the projected economic growth rate is around -30%, the largest quarterly economic decline in American history.
Unlike the U.S., the global economy entered 2020 facing sizable headwinds. The global economy started to weaken in early 2018 and continued to worsen. Global economic growth fell from 3.8% in 2017 to just 2.9% in 2019 – its slowest pace since the 2009 global financial crisis. For 2020, the International Monetary Fund (IMF) projects a global economic growth rate of -3%, the worst recession since the Great Depression of 1929-39.
In recent years, global economic weakness has significantly reduced trade between nations. Global trade growth of goods and services fell from 5.7% in 2017 to just 0.9% in 2019. This year, the IMF projects global trade growth of -11%.
Despite the current fallout, it appears the worst of the COVID-19 virus is behind us and national economies are gradually starting to reopen. By July, most of the government-mandated restrictions should be gone, paving the way for a sharp economic rebound in the third quarter and second half of the year. Without question, challenges remain. But as we pull ourselves out from this pandemic, there is a cautious optimism in the future economic outlook for the U.S. and global economies.
Mark M. Grywacheski, Investment Advisor
Opinions expressed herein are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell any securities at any given price. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets, or developments mentioned.
Quad Cities Investment Group, LLC is a registered investment advisor with the U.S. Securities Exchange Commission.
