The Lens is a weekly newsletter published by DuckerFrontier’s Global Economics and Scenarios team to highlight developments and trends that will have the highest impact on business scenarios. Our teams of analysts are conducting research into the potential impacts of the novel coronavirus (COVID-19) on the global economy and business environment. Subscribe today to receive the latest insights on COVID-19 business impacts in your inbox every Thursday.
Read this week’s edition of The Lens below as you prepare your business for coming changes.
We now expect China’s economic growth to stall at 0.0% YOY in Q1 before ticking up to 6.2% in Q2 on the back of pent-up demand and fiscal stimulus. However, the risks to this forecast clearly tilt to the downside because of rising threats to demand for Chinese exports from the coronavirus’ continued spread across the globe.We now expect China’s economic growth to stall at 0.0% YOY in Q1 before ticking up to 6.2% in Q2 on the back of pent-up demand and fiscal stimulus. However, the risks to this forecast clearly tilt to the downside because of rising threats to demand for Chinese exports from the coronavirus’ continued spread across the globe.
Entangled in a volatile and constantly evolving situation, firms should continue using DuckerFrontier’s forecasts to help evaluate the impact of COVID-19. With growth in China set to rebound in Q2, firms should prioritize industries that are likely to recover more rapidly and focus on sectors that are likely to remain resilient in the face of rising external headwinds.
Boyang Xue, Analyst for Northeast Asia
FrontierView clients: See our more recent China Market Review for further insights
DuckerFrontier revised its annual average Brent crude oil price forecast from US$53 to US$43 for 2020. This is based on the assumption that oil prices average sub-$40 for the rest of 1H2020, rising into the mid/high $40s in 2H2020, as global growth picks up mildly in H2. Although it is likely that Russia and Saudi reach an agreement to restore the previous quota arrangement (since neither country can withstand such oil prices economically or politically for too long), that will not push average prices back up over $50/bbl for 2020. Amid weak global demand, the strong inventory build up is likely to keep prices depressed in the rest of 2020.
The combined implications of depressed economic activity across the world and the oil price crash will dampen the outlook for both oil exporters and importers in the MENA region. As oil exporting governments are likely to prioritize supporting their consumers in the short term, lower oil revenues will delay public investment plans and reduce previously set budgets for procurement spending. Public spending will contract in countries like Saudi Arabia and Algeria in 2020. In oil importing countries, benefits of easing inflationary pressures on consumers will be cancelled out by coronavirus related disruptions to tourism. Services industries dampened remittance inflows from Europe and the GCC will hit consumer incomes in North Africa and the Levant, while tourism recovery expected in Morocco and Egypt will be delayed.
Zeynep Kosereisoglu, Director for the Middle East
FrontierView clients: See our recent Global forecast revisions – COVID 19 and oil price shock for further insights
The US outlook has worsened significantly following the onset of the coronavirus. Outbreaks in China and Europe will likely cause global trade to contract, threating US manufacturers. Fears among US consumers will substantially affect businesses such as large retail stores, restaurants, and hotels, though panic stockpiling may boost sales of necessity goods in the short run. Our model therefore projects a contraction in Q2 and a full-year growth rate of 1.2% for 2020 under such adverse conditions. Though, pre-coronavirus robustness may provide some extra buffer. Labor market indicators and corporate profits had been outperforming expectations up to February, giving the economy a relatively better position to uphold consumption and absorb losses. Nevertheless, a caveat is that turmoil in financial markets may exacerbate the contraction. US firms have been highly leveraged due to years of extra-low interest rates. The current panic in credit markets, if lasts for long, will raise borrowing costs and effectively cut off credit supply for many low-rated firms.
Businesses should be prepared for an incoming contraction as well as operational disruptions. Government policy responses, though necessary, will do little help to mitigate losses.
Yang Liu, Senior Analyst for Global Economics and Scenarios
FrontierView clients: See our more recent Global forecast revisions – COVID 19 and oil price shock for further insights
In our Events to Watch for 2020, we noted that a Biden presidency was our upside event, against a base case that Trump would win re-election. A Biden Presidency would be more moderate – with some mild increases likely in social expenditure, but an end to the cycle of constant business uncertainty generated under the Trump administration. Though Trump still has a clear map to victory, online prediction markets have started to favor the Democrats in recent weeks, based on the view that Biden is more electable than Sanders. Poor management of the coronavirus shock by the Trump administration could lead to substantial domestic economic weakness that could tilt the election for the democrats.
In a race this close, firms should evaluate the impact to their business that either a Biden or Trump re-election scenario could have, despite the likelihood of Trump winning reelection now being lower than before.
Sara Brown, Junior Analyst for Global Economics and Scenarios
FrontierView clients: See our more recent Events to Watch for 2020 for further insights
Coronavirus concerns have led DuckerFrontier to revise forecasts down for all key Western European markets. The region is likely to avoid a recession but the steeper slowdown in H1, exacerbated by the effects of coronavirus, pose significant risks to employment and consumer demand. The Bank of England mimicked the US Federal Reserve’s emergency rate cut. Likewise, the European Central Bank should cut rates on Monday and expand the amount of corporate purchases, in an attempt to bolster financial sentiment, while also calling more assertively for fiscal stimulus.
The slump in Chinese sentiment will translate into even slower demand for manufactured goods (especially computers, electronics, pharmaceuticals and transport equipment) and will dampen business sentiment. Compounding the slowdown in external demand, France, Spain, Italy, and Germany will see weakness in the services, especially in the travel, hospitality, recreation and retail sectors, further depressing both B2C and B2B demand. Firms should accordingly inform their assumptions and adjust their targets for 2020.
Athanasia Kokkinogeni, Senior Analyst for Europe
FronterView clients: See our recent WUER Market Monitor for further insights