(Yicai Global) May 27 -- Global gross domestic product is likely to fall by 4.8 percent this year while the speed of recovery depends on how fast the Covid-19 pandemic can be contained, according to HSBC's global chief economist.
"For a lot of the countries we forecast, we're not expecting the level of activity -- even by the end of 2021 -- to be back where it was at the end of 2019," Janet Henry told Yicai Global in an exclusive interview.
The ripple effects could drag on till next year. The global unemployment rate will continue to rise in 2021, while deficits should expand, and various countries' debt levels could also rise significantly, she predicted.
Despite China's flatlining curve of new infections, other regions are still struggling. "For most countries, we think that April and May will be the most severe period of lockdown, and that will be the most significant contraction in demand as a consequence of those lockdown measures."
After lockdowns are ended, the world should see partial recovery in a large range of goods and services, as well as production, she forecast. By June, business activity may recover from April and May, and improve incrementally in the second half of the year, she added.
But problems may re-emerge. There could be renewed periods of weakness if a second wave of infections appears. Although consumer behavior could start to stabilize, concerns about unemployment could lead to a further increase in precautionary savings, said Henry, who has been serving in her role since 2015.
Governments around the world have launched stimulus packages to rekindle growth. The European Central Bank, as well as those of Denmark, Sweden, Switzerland and Japan have already deployed negative interest rates to boost spending. Last week, the UK issued government bonds with negative yields for the first time ever.
But the Bank of England is not likely to resort to negative interest rates, according to London-headquartered HSBC. "I don't think that's something up for consideration by the Bank of England or the Federal Reserve at the moment. Possibly in the future, but not yet. They've got other policy stimulus measures that they can stick to for now. "
Restraint could be seen as risk aversion. "There are some risks to other parts of the financial system from actually having negative interest rates. So that's what central banks are having to weigh up at the moment: whether they can give sufficient policy stimulus from their liquidity measures and, indeed, from their asset purchases... whether they actually need to go into negative rate territory for policy interest rates."
'Cliff-Edge Brexit' Is Unlikely
While global supply chains have been disrupted by epidemic prevention measures, the UK has been preparing for a trade upheaval of its own kind. But Henry is optimistic about the UK reaching a trade agreement with the European Union before leaving the trading bloc.
"I think it's unlikely that we leave with any kind of cliff-edge Brexit," she said. "We've been working on the assumption in recent months that there would most likely be an extension of the transition period."
By mid-June, the UK should request an extension, but the government has so far been indicating that they are not going to do so, she said. Still, negotiations can continue in the second half of 2021, she added.
That would give both sides more time to negotiate a better deal. The two possible outcomes could be a final deal or an initial one that could form a base for further negotiations taking place next year or even beyond, she added.
Editor: Dou Shicong, Emmi Laine