Lessons learnt from Q1 collapse in global GDP
Global GDP growth, in year-on-year terms, slowed to -2.7% in Q12020 from +3.1% in Q4 2019 and in quarter-on-quarter terms to -4.5% from +0.6% in Q4, based on growth rates in 14 major economies accounting for close to 90% of world GDP.
Global GDP growth in Q1 was at its weakest in over thirty years, at least in quarter-on-quarter terms. By comparison the growth slowdown in 2008 was both less acute and more gradual even if it did gather pace in the second half of the year.
Almost two year’s worth of GDP growth was wiped out in Q1 2020 and the world was very much in recession for the first time since 2009, based on the IMF’s definition.
Global GDP in nominal terms was about $4.5trn lower than it would have been had real GDP growth remain unchanged in Q1 2020 at around 0.7% qoq, according to our estimates. That is a loss equivalent to somewhere between the annual GDP of Germany and Japan.
Among the 14 major economies which have so far released GDP data for Q1 only Chile recorded positive quarter-on-quarter growth.
The economies of Hong Kong and Japan were already in recession in Q1 and the European Union, United Kingdom, Canada and Thailand only narrowly missed being in recession, thanks to slightly above zero GDP growth in Q4 2019.
These major economies were already weak even before they were fully put into lockdown due to domestic growth headwinds not related to covid-19.
Nevertheless, unsurprisingly GDP growth contracted more sharply in Q1 in countries which instituted early and/or aggressive national lockdowns (e.g. many Asian economies and Eurozone economies, including Italy, France and Spain).
Conversely, economies which i) did not introduce national lockdowns (e.g. Sweden), ii) introduced them later (e.g. United Kingdom) or only partially (e.g. United States) or iii) introduced “softer” versions of lockdown (e.g. UK) recorded smaller GDP contractions.
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Olivier is an economist and rates & FX strategist with over 22 years experience in financial markets. He is Director and Founder of 4X Global Research, an independent, London-based consultancy which provides institutional and corporate clients with substantive research, high-quality analysis and insight on emerging and G20 economies and financial markets.