Global Economy GDP Could Decline by Almost 5% in 2020

June 25, 2020
761 Views

American stock markets have hit a wall this week, with investors feeling bearish from increased Coronavirus infections and reignited train tensions. The U.S. is heading towards a negative gross domestic product (GDP) result for the year, and the wider global economy is also in trouble.

According to the International Monetary Fund (IMF), economic loss this year will be worse than initially predicted in April.

Worrying Forecast From the International Monetary Fund

The IMF predicted in April that global GDP would decline by -3% in 2020. With the Coronavirus Pandemic still expanding globally, it now has a much worse outlook. Analysts believe that GDP will contract by -4.9%, and this figure could worsen depending on how long the health crisis lasts.

A spokesperson from the IMF said that the Coronavirus is leading to an “unprecedented decline in global activity.” In the same statement, it was noted that the labor market has suffered “catastrophic” damage.

Businesses are running leaner during the crisis. They are investing less, spending less, and laying off staff in all but the most essential roles. Consumer spending has also dropped.

A decline of -4.9% is concerning, but other groups have predicted worse. The Organization for Economic Cooperation and Development believes that the global economy will be down -6% by the end of the year. The World Bank is slightly more conservative with a prediction of a -5.2% decline.

Global Economy A Lot of Uncertainty for Investors

Momentum was increasing in the stock market before renewed trade tensions, social unrest, and rising Coronavirus numbers were factored in. Now investors will need to consider how the global economy will impact American businesses and the U.S. dollar.

No country has truly eliminated the virus, despite a few coming very close. In the U.S., daily infection rates are approaching the peaks of two months ago.

Investors will need to consider their picks carefully, especially when trading in industries that are highly exposed to the consumer economy. Technology is one area where there are strong stocks with some resilience to Coronavirus and trade factors, but nothing is sure in this unprecedented market.

Pharmaceutical stocks are also compelling, thanks to the recession-resistant nature of companies that develop drugs and healthcare products.

The market may have stalled in the week so far, but there are still two days of trading where any positive news could signal a quick turnaround.

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