Coronavirus Crisis Is ‘Crushing’ Global GDP Growth

The financial impact of the coronavirus is “crushing global GDP growth” according to Fitch Ratings’ most recent economic forecast, which has been cut nearly in half from what it expected just a few months ago.

In its latest quarterly Global Economic Outlook, Fitch slashed its baseline global growth forecast for 2020 to 1.3% from its December forecast of 2.5%, which would leave global gross domestic product (GDP) for the year $850 billion lower than previously expected. And the firm says this could very easily fall even further if more pervasive lockdown measures are implemented throughout all the G7 economies.

“The level of world GDP is falling,” Brian Coulton, chief economist at Fitch Ratings, said in a statement. “For all intents and purposes we are in global recession territory.”

In its report, Fitch said the shock to the Chinese economy has been “very severe” and its GDP is likely to fall by more than 5% during the first quarter alone.

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“Falling GDP in China is virtually unprecedented and, in the near term at least, these numbers are worse than most previous hypothetical ‘hard-landing’ scenarios,” the report said. And although the sharply falling number of new COVID-19 cases in China portends a strong economic recovery during the second quarter, Fitch says the delayed impact of supply-chain disruptions, and lower Chinese demand on the rest of the world, “will continue to be felt profoundly for some time,” particularly in the eurozone and the rest of Asia.

Additionally, Fitch said the rapid outbreak of the virus outside China has led to sharp declines in travel and tourism and the cancellation of business trips and vacations worldwide. It also pointed out that other large advanced countries have enacted large-scale lockdowns similar to those seen in China. It said these countries are likely to see sharp declines in GDP in the coming months.

“The interruptions to economic activity seen in China—and now in Italy—are on a scale and speed rarely seen other than during periods of military conflict, natural disasters, or financial crises,” the report said. “The risk is that we shortly see these abrupt interruptions happening simultaneously across all major economies as the global pandemic spreads.”

Despite an expected recovery in the second quarter in China, Fitch’s forecasts that growth in the country will fall to 3.7% for the year, and it expects Italian and Spanish GDP to drop 2% and 1%, respectively. It also forecasts US GDP growth to be just 1% in 2020 compared with a pre-pandemic outlook of 2%.

However, these forecasts were finalized prior to announcements that full-scale lockdowns would take place in other major countries. Now that lockdowns have occurred in France, the United Kingdom, and several US states, it’s likely the firm will eventually downgrade those figures even further. Fitch said that because of the speed at which the crisis is evolving, it will update its global economic forecasts with a much higher frequency over the coming months than its usual quarterly publication cycle.

Fitch said escalating lockdown responses across the major economies would mean that the chances of an even weaker GDP outcome are very likely. It said a downside variant to its baseline forecast shows GDP in Europe down by more than 1.5%, US GDP down by nearly 1%, and Chinese growth falling to just over 2%.

“The uncertainties here are huge,” Coulton said, “and we are really only at the beginning of the process of trying to understand the full impact of the crisis on the world economy.”

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Tags: Brian Coulton, China, Coronavirus, COVID-19, Economic Outlook, Fitch Ratings, GDP, growth

Rex Kim, courtesy of Oregon State Treasury

The Oregon State Treasury announced that Rex Kim will spearhead the investment governance of the Oregon Public Employees’ Retirement Fund (PERF), the Oregon Short Term Fund, and the Common School Fund.

Kim will replace John Skjervem, who announced his departure last month to join the California-based investment consulting firm Alan Biller and Associates, where he will replace founder Alan Biller as CEO beginning in April. Skjervem had served as the state treasury’s CIO since 2012.

“I’m excited to be able to serve Oregon and the Oregon State Treasury in this new capacity,” said Kim, who has served on the Oregon Investment Council (OIC) since 2016. “The talented and dedicated professionals in Treasury’s investment division are the best in the field, and it’ll be an honor to work directly with them on behalf of Oregonians.”

The OIC is a heavyweight private assets allocator and regularly distributes commitments stretching more than $100 million to the world’s leading alternatives managers. Only three public pension plans in the United States surpass the scale of OIC’s private equity portfolio: the California Public Employees’ Retirement System (CalPERS), the California State Teachers’ Retirement System (CalSTRS), and the Washington State Investment Board.

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Deputy Treasurer Michael Kaplan said, “John oversaw meaningful, long-lasting changes to our investment division, and we want to build on that important work. Not long after we let OIC members know about John leaving, Rex expressed interest in the position, which seemed too good to be true. After interviewing Rex, we knew we’d found the right person to lead the team and help further strengthen our investment program.”

The fund last year decided to reallocate some capital away from public equities, and into risk-parity and alternatives-focused diversifying strategies.

Kim brings with him experience from several different investment-related agencies over a period of 25 years, with a focus on asset management and investment consulting. His resume includes serving as a senior consultant at Multnomah Group, a managing director at Tallwoods Partners, a portfolio manager at Common Sense Investment Management, and the director of hedge fund research at CTC Consulting. He’s also served as an adjunct instructor, teaching courses in finance.