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Sun 22 Mar 2020 12:08 PM

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Coronavirus: Are we heading for a global recession?

Barclays has slashed its global growth forecast as a result of the Covid-19 pandemic

Coronavirus: Are we heading for a global recession?

Image: Getty Images

The impact of the ongoing coronavirus pandemic has drastically slashed forecasts for global economic growth in 2020, although it is too early to estimate the precise impact, according to Henk Potts, director, market strategist EMEA at Barclays Bank and Overseas Services.

In an interview with Arabian Business, Potts said that Barclays now believes global economic growth to stand at approximately 1.8 percent in 2020, down significantly from the 3.1 percent forecast it had at the beginning of the year.

“Markets have been spooked by the acceleration [of Covid-19] that we’ve seen, in Europe particularly,” he said. “In terms of the outlook, the global economy will remain uncertain. Markets remain volatile, and will be volatile until the peak is determined.”

“The impact will be determined by its lifespan, intensity and geographical spread,” he added. “That’s what we’re waiting to see and try to comprehend.”

However, Potts said that certain regions are significantly more vulnerable to the impact of the coronavirus than others, particularly economies in East Asia and in Europe.

“We expect the Chinese economy to contract by 8 percent in the first quarter, [as a result of falls in] retail and industrial production,” Potts said. “For Europe, we expect a technical recession in the first half of the year.”

Potts added that “output has fallen dramatically, and simultaneously has been coming under pressure as travel has been limited and consumer discretionary spending has been under pressure.”

For the Middle East, Potts said that Barclays is still working on models to determine the possible impact of the coronavirus, although he said that the region’s economic growth is just as much determined by oil prices and the structural breakdown of the OPEC+ agreement as it is by virus-related restrictions on travel and trade.

“Clearly, it [oil prices] will be depressed for a long time. That will put pressure on national budgets that are reliant on oil,” he said, picking out the UAE, Saudi Arabia and Iraq as examples.

Additionally, Potts said that lower oil prices may benefit business, as fuel prices are a key cost of doing business, while consumers will not have to spend as much to fuel up their vehicles, for example.

“That would be a benefit, but not enough to compensate for the negative impact of the coronavirus,” he said. “It’s difficult to make predictions at this stage.”

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