Why we aren't predicting a global recession

• ? Fears that the global economy is heading into a recession are rising. But while we cannot ignore the risks that a recession could be brewing, our baseline assumption is still for a modest growth slowdown from here.
• ? The global economy is in a similar position to 2012 and 2015, as mounting uncertainties dampen growth. This time, trade tensions are a high‐profile culprit rather than the possible collapse of the eurozone or a China hard landing.
• ? In the previous two cases global growth fell to around 2.5% ‐ around the rates seen in Q2 this year ‐ only to then rebound. Our baseline forecasts assume a similar mini cycle, albeit with only a modest growth rebound.
• ? We also assume that further major adverse shocks won't materialise, and that insurance policy moves by central banks will stop a plunge in investment and households from panicking.
• ? Still, recession fears should be taken seriously ‐ slowdowns can become self‐perpetuating. Once annual GDP growth has fallen by over 1ppt from its peak, the eventual decline typically ends up being much larger ‐ of the seven growth slowdowns since the late 1970s where annual growth slowed by over 1ppt ‐ four resulted in either a global recession or only a narrow escape from one.
• ? With US‐China tensions unlikely to recede and factors like the US yield curve inversion adding to the air of gloom, the latest downturn could gain momentum.
• ? Although reduced macro volatility and anchored inflation have made it easier for policymakers to deliver soft landings, the effectiveness of monetary policy has waned. And with China no longer acting as spender of last resort, it's vital that governments in advanced economies stand ready to pick up the slack

     

Consumers alone shouldn't trigger the next recession

• ? If consumers in advanced economies were to hike their savings and rein in their discretionary spending in response to fears about the economy, we project global GDP growth in 2020 would slow to a subdued 2.1% (below our 2.5% baseline forecast), but the world economy would avoid a recession.
• ? The risks of rising precautionary savings aren't uniform across the advanced economies. For instance, the UK, Australia, Canada and Japan look particularly vulnerable to slowing retail sales, which could trigger a stronger downturn in those countries.
• ? Economies with the highest rates of consumer debt are also likely to be more at risk to weaker discretionary spending. In this respect, Australia, the Netherlands and Canada stand out the most.

     

Goodbye grey skies? 2018's global shocks may be fading

• ? It may be premature to declare the onset of happy days for the global economy, but our trawl through the various drivers of weakness over the last year or so suggests the worst is behind us.
• ? Our lengthy list of lifting clouds is led by China, where policy stimulus is showing signs of boosting lending, but there are other sources of optimism too. The eurozone's run of bad luck may be turning, and there are reasons for optimism on trade wars. Plenty of 2018's bad news was interconnected and centred around adverse global financial conditions, US dollar strength and very tough external conditions for EM. These have reversed in Q1 2019 amid receding fears that global inflation is set to surge.
• ? But we are not yet proclaiming hello to blue skies. After all, recent shocks – good or bad – should on average fade over time. The context is one of weakening trend growth (we are partial believers in the secular stagnation hypothesis) and of pockets of weakness in global balance sheets, including in China.
• ? And we see three conspicuous potentially negative drivers for the global economy. First, there is the fading impact of the US fiscal boost. Second, there is a small probability that some of the ongoing negatives – such as trade wars – could blow up into something very nasty. Third, there is a possibility that negative momentum from past and ongoing shocks may push weakness into Q2 and beyond.
• ? But on balance, all of this adds up to a receding risk of global recession. We now attach a 20% probability to a fall in advanced economy GDP per capita over the next two years, down from 25% previously. Our increased optimism is based on (i) the analysis in this article, (ii) our growing confidence that soft landings are attainable and (iii) our assessment that late‐cycle vulnerabilities may be overstated.

     

How likely is a UK recession after Brexit?

• In the wake of the UK Brexit vote, forecasters have rushed to downgrade their growth forecasts for the UK, with some now expecting a recession. Using the Oxford Economics' Global Economic Model, we examine how likely a recession is by looking at the shocks the UK economy faces and the policy responses. We conclude that while a sharp slowdown is likely – in line with our own new forecasts – a recession is unlikely.
• Many UK forecasters are now predicting a recession in 2017, even though ‘stand‐alone’ recessions in industrial countries are rare. Our forecast is less downbeat. The UK faces a series of negative shocks including to consumers and business confidence, but growth will be supported by the weaker sterling and likely policy responses.
• Using the Oxford Economics' Global Economic Model, we show that to shift our baseline forecast of growth of 1.1% next year to zero would require a very severe negative confidence shock. Our new baseline already assumes a shock equivalent to one‐third of that seen in the global financial crisis (GFC). All else being equal, the shock would have to be around two‐thirds of that in the GFC to cut GDP growth to zero in 2017.
• Our new baseline also does not incorporate all the possible policy levers the UK can employ. We currently assume the Bank Rate drops to zero, but if a ‘rescue package’ of £75 billion of QE and a fiscal stimulus equal to 1% of GDP was also added, then the shock to confidence needed to get zero GDP growth would have to be similar to that seen in the GFC. We do not consider this likely given the scale of financial stress and credit restriction that occurred globally at the time of the GFC.

     

World Economic Prospects Monthly

Overview: Market falls overstate loss of momentum

• ? Financial market moves in recent months suggest that there is increasing concern about a substantial global growth slowdown or even a recession. But we continue to see this as an over‐reaction to the weakening economic data; while the downside risks to the global GDP growth outlook have clearly risen, our baseline forecast for 2019 is little changed at 2.7%, down from 3% in 2018.
• ? Recent economic news confirms that the Q3 economic soft patch appears to have spilled over into Q4, particularly in the industrial sector which has seen a broad‐based loss of momentum in many economies coinciding with a further slowdown in global trade growth. But while surveys of service sector activity have also moderated, the falls have been rather less abrupt, suggesting that overall global GDP growth is slowing albeit not alarmingly so.
• ? On balance, we think that the weaker data do not provide compelling evidence that global growth is slowing more sharply than our December forecast. Although the financial market sell‐off and associated tightening in financial conditions will impinge on growth, this may at least be partly offset by weaker inflation in response to lower oil prices, now seen at US$61pb in 2019. This, combined with the continued strength of labour markets and the likelihood of further moderate wage growth, points to a further period of solid household spending growth.
• ? Nonetheless, the risk of a sharper slowdown has risen. Cyclical risks have increased over the past couple of years as spare capacity has diminished. And uncertainty over the economic and financial market impact of the unwinding of central balance sheets have added to the risk of policy mistakes.
• ? Although our central view is that the recent financial market correction will not morph into something rather nastier, further sustained weakness (particularly if accompanied by dollar strength) would have more significant implications for activity and could see world growth falling below the 2016 post‐crisis low of 2.4%.

     

How would Eurozone equities respond to a bond sell‐off?

• We have developed a new model to measure the impact on Eurozone equities of a global bond sell‐off as the Fed starts to tighten its monetary stance later this year. We show that the most affected countries would be Greece, Finland and Portugal: the cumulated equity loss compared to the baseline ranges from between 35% to more than 50% in the case of Greece at the end of 2017. Under this scenario, Belgium, Ireland and Austria are less impacted by the global re‐pricing of risk.
• In light of global risk being skewed to the downside (China, Greece, risk‐off), it is essential to have a framework that is able to generate consistent responses of Eurozone stock indices to global macro shocks in stress test scenarios. The approach assesses first the co‐movements of Eurozone stock indices and aims to explain them with macro variables such as the US S&P index, the oil price, the euro/dollar exchange rate and short‐ and long‐term interest rate differentials between the Eurozone and the US.
• We find a high degree of co‐movement in Eurozone equity returns. This matters from an asset management perspective, as it reveals limited potential for diversification benefits of an equity portfolio invested across Eurozone countries.

     

Global economy robust to higher oil,but EM vulnerable

• ? We do not envisage major central banks being pricked into deflationary action by the oil spike as there are limited concerns over a wage‐price spiral. But further rises — say to $100pb — would sour the global economy's ‘Goldilocks’ period. Vulnerable EM are the biggest concern; for some the impact is relatively large and could pile pressure on already‐strained domestic policies .
• ? A comparison with historical precedents is generally consoling. First, the price rise of 60% in the last year — though big — is only the sixth largest since 1973. Second, oil‐related global slowdowns have usually been associated with central bank hikes, which are less likely now than in past periods when inflation was less well anchored.
• ? Global implications: our baseline forecast of $80bp in H2 2018 may prompt a modest rise in non‐energy inflation and wages, and slightly weaker GDP growth. But we anticipate limited monetary policy responses. Concerns about the negative impact on activity are likely to trump fears of second‐round inflation effects.
• ? Model simulations: souring Goldilocks' porridge. Our $100pb oil simulations reveal a peak impact in 2020, knocking 0.7% off the level of global GDP. Inflation rises 1.2pp above our baseline by 2019.
• ? The recent association between strong oil and a strong dollar is unusual, but is probably not reflective of a fundamental change in the usual historic relationship (strong oil‐weak dollar).
• ? Simulations suggest EM oil importers endure the biggest hits via a (i) sharp terms of trade reversal; (ii) dollar strength; (iii) capital flows reversals; and (iv) recent reductions of oil price subsidies leaving consumers vulnerable to price increases. The most affected include already‐vulnerable economies Greece, Argentina and Turkey, as well as EM heavyweights China and India.

     

World Economic Prospects Monthly

Overview: Global growth resilient to trade slowdown

• ? It seems increasingly clear that the manufacturing‐ and trade‐driven soft patch in late‐2018 is extending into this year. But we still think that global recession risks remain low and see no reason to make any notable shifts to our outlook for the global economy this year. We continue to forecast that GDP growth will slow from 3.0% in 2018 to 2.7% this year, with a similar outcome seen in 2020.
• ? Various indicators show that trade volumes slowed sharply at end‐2018 and survey indicators for January suggest that the situation has not improved since then (see Chart). The main reason for this weakness has been China, where imports ended the year on a very weak note and we expect a further slowdown in Q1.
• ? We have lowered our forecast of Chinese imports in 2019 by around 1.5pp in response. However, we expect a bounce back in Q2 and beyond; reflecting this, Chinese import growth over the year as whole is still expected to be notably stronger than in the 2015/16 soft patch. In a similar vein, while global trade growth is expected to slow sharply from 4.6% to 3.3% this year (down from 3.6% last month), it should still be stronger than in 2012–16, providing a solid backdrop for exporters.
• ? Meanwhile, financial markets have rebounded sharply from the December sell‐off due to renewed optimism regarding US and China trade talks and a more dovish Fed. We now expect the Fed to leave rates on hold until at least Q3 and hike rates only once this year. This, along with lower government bond yields and weaker inflation, is also likely to reduce the need for monetary tightening elsewhere, particularly in emerging markets (EMs), helping to support global growth later in the year.
• ? Overall, we still see global GDP growth softening in H1, but with a modest rebound in H2 as Chinese growth stabilises and EMs and European growth regain momentum. Sharper slowdowns in China and global trade and financial‐market weakness remain key concerns for the 2020 outlook. But the risk of inflation‐induced policy tightening is still low and the odds of a renewed flare‐up in trade tensions have ebbed lately.

     

Central bank hawks unlikely to gain the ascendancy

• ? Although further financial market weakness could delay or scale back central bank tightening this year, the waters are being muddied by the perception that underlying inflation pressures are building and that past exceptional measures to counter downside risks may no longer be needed. On balance, we think that it is more likely that central banks will push back, rather than bring forward, rate hikes, especially if the recent oil price weakness persists.
• ? The most crucial issues for the path of monetary policy are likely to be the outlook for inflation and the risks to growth prospects. While there may be grounds to reverse past ‘insurance’ cuts in interest rates, only a slow pace of normalisation is justified at present, in our view. In Europe in particular, sustained lowflation remains a risk.
• ? Central banks may develop a taste for raising rates if they perceive the neutral interest rate to be trending up. There may also be a desire to normalise policy to create space for future loosening, but this will only affect policy at the margin. Meanwhile, although problems such as banking troubles and the zombification of firms are often blamed on low interest rates, they are probably more a symptom of low growth and other more structural issues. Raising interest rates is unlikely to resolve these problems.
• ? At the margin, central bank behaviour may become less dovish. However, with the global economy slowing and some recession warning indicators flashing amber, the wings of the hawks will likely remain clipped.

     

Don't rely on public investment to save the day

• ▀ We think public investment in the advanced economies should be increased, but we're also sceptical that, on its own, it can save economies from recession in the event of further negative shocks.
• ▀ Deteriorating infrastructure and low bond yields make a compelling case for sustained increases in public investment. And given the shortage of safe assets and the global savings glut, higher government borrowing seems unlikely to have big negative repercussions for private sector borrowers.
• ▀ But the scope for a sustained and aggressive rise in public investment to counter shocks is limited. Even when funds are plentiful, governments often struggle to meet capital spending targets due to other constraints.
• ▀ Spikes in public investment during downturns typically dry up the capital pipeline, leading to falling investment further ahead. As a result, it's harder to sustain increases in investment, compared to other government spending.

     

Brexit and world growth – what are the risks?

• The initial global market reaction to the UK Brexit vote was very negative and in our view overdone. Nevertheless, we expect the uncertainty to linger for a while, with the vote having refocused investors on existing vulnerabilities in the world economy. Our new forecasts see the main negative impacts on growth being in the UK, the Eurozone and Japan. Risks to our new forecasts remain skewed to the downside, with a significant danger of world growth dropping below 2% this year.
• Our new forecasts see UK growth dropping to 1.4% a year in 2017–18, down from 2.2–2.3% a year before. In the Eurozone, growth will be around 0.2% a year weaker in 2017–18 and Japan is also a loser as a result of the risk aversion‐driven stronger yen, with growth at just 0.3% in 2017 from 0.5%.
• The size of the initial global market sell‐off makes no sense in the context of the likely impact from a weaker UK. In part, it seems to have reflected the pricing in of very negative scenarios in the Eurozone. But investors may also be worrying about other global problems glossed over in recent months.
• One risk to our forecast is that confidence effects on businesses and consumers are larger than we expect – but such effects are often overstated. Another danger is that more of the recent financial market weakness will ‘stick’ than our new baseline forecasts assume.
• Our world recession indicator is already at elevated levels and suggests a significant danger of world growth slipping below 2% this year; not a recession, but it might feel like one. Global policymakers need to act quickly to head off the risks.

     

Housing slump could cut world growth to decade‐low

• ? A combined slump in house prices and housing investment in the major economies could cut world growth to a 10‐year low of 2.2% by 2020 – and to below 2% if it also triggered a tightening in global credit conditions.
• ? In such a scenario, inflation would remain well below target in the main economies, and US Fed rates would be up to 100 basis points lower than in our baseline by 2021.
• ? Signs of a global house price downturn are already visible, with around a third of our sample of economies seeing falling prices and world residential investment starting to decline. High house price valuations add to the risk that this downturn will deepen in the coming quarters, hitting consumer spending.
• ? Using the Oxford Global Economic Model, we find that a 10% fall in house prices and an 8% fall in housing investment both cut growth by around 0.3%‐0.4% across regions. Adding a sharp Chinese downturn, such as that seen in 2015, has a large additional impact on growth in Asia .

     

The global impact of a sharper US‐China slowdown

• ? We forecast a moderate global slowdown through 2020, but risks are looming of a sharper downturn in China and the US. If these were to materialise, our simulations suggest global GDP growth would hit a post‐crisis low, with the level of GDP dropping by 0.6% and growth slowing by 0.4 ppt in 2019/20.
• ? Economies with strong trade linkages to China and the US – Korea, Taiwan and Mexico – would suffer most. Conversely, a weaker dollar, lower oil prices and relatively smaller trade flows with the US and China would offset the blow in Europe and for some EMs, including Turkey, Argentina and India.
• ? Since 2010, Chinese activity has been a powerful leading indicator of every major economy's exports, proving stronger than similar indicators for US or eurozone activity. This is even the case for non‐Asian economies such as Canada, Mexico, Italy, Germany, France and the UK. This may reflect deepening trading relationships and the relatively high volatility of Chinese cyclical indicators over the period.
• ? Over the past decade, global macro stability has been supported by the US and Chinese cycles moving counter to each other. But this could reverse if the ongoing Chinese policy stimulus fails to gain traction and the weakness gains momentum.

     

World Economic Prospects

Overview: Global deflation – a genuine risk?

• The notable decline in inflation in the Eurozone, US and UK since mid-2013 has led to suggestions that a period of widespread price deflation across the major economies is a risk. Adding to these concerns has been the trajectory of producer prices – already declining in the Eurozone and China and showing very subdued growth elsewhere.
• Our global GDP forecasts do not, in isolation, point to a worldwide deflation risk. We expect growth at 2.8% this year and 3.2% next, little changed from last month.
• But the starting point for this growth matters, specifically the gap between actual and potential output last year. Even with reasonable growth, an initially large output gap would imply downward pressure on inflation over the next two years.
• Unfortunately, the size of the output gap is very uncertain. There is a wide range of estimates for the major economies, especially Japan. Part of the problem is that it is hard to know how much potential output was (or was not) permanently lost during the global financial crisis and recession.
• Assuming substantial permanent losses, output gaps might be relatively modest now, but a more optimistic view of the supply side of the economy would suggest output gaps could be quite large – and arguably this fits better with the recent evidence from inflation.
• Overall, while we see a genuine risk of deflation in the Eurozone (with around a 15% probability) we are more upbeat about the other major economies, where growth in the broad money supply and nominal GDP do not seem to be signaling deflation risks.
• But the difficulty of measuring ‘slack’ in the economy for us underlines the case for central banks to err on the side of caution when setting monetary policy, and either not tightening too soon or easing further. This month we have built in a further ECB rate cut to our Eurozone forecast. In Japan, we have revised down growth for 2014–15 with recent data strengthening the case for additional monetary easing this year.

     

UK inflation set to tumble below target by autumn

• ? We expect CPI inflation to slow markedly this year, dropping below the 2% target by the autumn. The inflationary impulse from the 2016 depreciation is fading and should partially reverse, while global food and energy prices are expected to stabilise. Base effects will become increasingly important.
• ? CPI inflation reached a five‐and‐a‐half‐year high of 3.1% in November, up from a little over 1% a year earlier. The 2017 pick‐up in inflation was the result of a perfect storm of a weaker pound, higher oil prices and sharp rises in domestic electricity bills. But inflation has subsequently slowed, reaching 2.5% in March. And, after a brief hiatus, we expect the downward trend to continue as we move through the year.
• ? The key driver of lower inflation will be weaker core pressures. In line with the literature, there is already evidence that the impact of sterling's depreciation is fading, and we think that the pressures could partially reverse if sterling continues to strengthen. We see little prospect of an offsetting escalation in domestic cost pressures. The recent pick‐up in wage growth has been muted and a further acceleration above 3% looks unlikely while there remains slack in the labour market.
• ? The food, petrol and energy categories contributed 0.8 ppt to CPI inflation last year, compared with a drag of 0.5 ppt in 2016, as stronger global pressures combined with the weaker pound. But as global prices have been more subdued of late, by the end of 2018, we expect these categories to be contributing 0.5 ppt to CPI inflation.
• ? The final element behind the expected slowdown in inflation is base effects. The comparison with last year's strong price pressures will depress the 2018 inflation rate, and we see the base effects being at their strongest mid‐year.
• ? We think it unlikely that such a slowdown in inflation would derail the MPC from hiking interest rates twice this year. But it could temper its hawkishness in 2019.

     

G7 consumption: after the wealth rush

• ? In only one of 12 large advanced economies do we expect consumption to outstrip GDP growth in 2018. As key drivers rotate, the impact of a recovery in real incomes will be dampened by higher oil prices and waning wealth effects .
• ? Policy‐fuelled asset booms sustained the post‐crisis recovery in G7 consumption, though by historical standards the recovery was nothing special. Historically, the G7's average 5‐year recovery from troughs entailed consumption matching GDP growth, but in the five years from 2010 consumption was 0.2 ppt weaker. Its relative strength only picked up from 2015, when boosted by weak oil prices.
• ? Relatively weak G7 consumption growth is likely to continue as key drivers rotate. Strong employment growth and a modest pick‐up in wage inflation will offset waning equity and housing wealth effects.
• ? Near‐term risks are two‐way. An oil‐fuelled inflation surprise could hit consumers, wreck central bank gradualism and reveal balance sheet weaknesses. Currently, however, we see only limited pockets of credit risk and vulnerability to higher rates.
• ? Conversely, there is scope for a credit‐fuelled boost to consumption. G7 household borrowing relative to its trend is arguably close to 40‐year lows, so unless financial deepening has reached a limit, there is scope for increases in borrowing. Furthermore, G7 bank deleveraging could be over, boosting credit supply conditions.
• ? We see two positive longer‐term drivers of the global consumption share: (i) Asian economies will become more consumption‐driven; (ii) Household re‐leveraging offers scope for some debt‐fuelled consumption growth. Offsetting negatives are that demographics, interest rates and asset prices will provide little support

     

Four reasons why 2018 will be the best post‐crisis year

• ? We head into 2018 in a fairly optimistic mood. The current upswing is more broadly based than any other since the global financial crisis, and – unusually by recent standards – we have entered the new year without any major crisis looming. We see world GDP growth accelerating from 3.0% last year to 3.2% in 2018, which would be the best year for the global economy since the post‐global financial crisis rebound .
• ? There are four key reasons why 2018 is going to be a good one globally: (i) strong trade growth; (ii) muted inflation keeping monetary policy accommodative; (iii) emerging markets staying robust; (iv) resilience to political uncertainty.
• ? The near‐term risk of an abrupt slowdown in China looks limited, while the Eurozone economy continues to stage robust growth which is underpinned by strong fundamentals. A potential fiscal loosening, a weaker dollar and business investment revival bode well for the US. The outlook is bright for economies that are heavily integrated into global manufacturing supply chains or reliant on commodity exports.
• ? Granted, soaring debt is a cause for concern, particularly in some emerging markets, along with high asset price valuations. They warrant close monitoring and are plausible triggers for the next global slowdown. Nonetheless, while such risks could linger or indeed escalate further before correcting, we don't see them as 2018 issues.
• ? The most obvious trigger for any such correction would be a widespread and more aggressive monetary policy normalisation. However, in our view, inflation pressures look set to build only slowly. Add the fact that high debt will make the economy more sensitive to interest rate moves, we expect central banks to normalise with caution and see policymakers doing less tightening that the consensus expectation.

     

World Economic Prospects

Overview: Oil price slump boosts growth forecasts

• Oil prices have fallen further over the past month, with Brent dropping below US$50 per barrel. Prices are now down over 50% from their June 2014 peak levels. We do not expect any significant supply response (either from Saudi Arabia or US shale producers) to come through until late this year so low prices will persist for some time.
• This is a positive development for world growth, though the impact will be uneven across countries. Based on our new oil price forecast of US$55/barrel for 2015, we estimate that the oil bill for ten leading industrial economies, (accounting for over 60% of world GDP) will be US$440 billion lower than it would have been based on our June 2014 oil forecasts.
• This is around 1% of their combined GDP, money potentially free to be spent on other goods and services, including those of their main trading partners.
• US consumer sentiment already shows signs of reacting positively and with other US consumer fundamentals also improving we have upgraded our 2015 GDP growth forecast to 3.3% from 3% last month.
• We have also upgraded our forecasts for other advanced economies such as the Eurozone and Japan, where lower prices should be a flip to hardpressed consumers in particular.
• For the emerging markets, the slide in oil has starkly different consequences for different countries. Oil producers will be losers, most strikingly Russia where we now see GDP down over 6% this year – with financial instability exacerbating the oil effect. But China and India should both gain.
• Lower oil prices will also ease the external pressures some emergers have felt in recent months – reducing the risk of further hikes in domestic interest rates resulting from inflation and currency pressures.
• We now see world growth at 2.9% in 2015, up a tenth from last month and an increase from 2.6% growth last year. This is our first upgrade to the global growth forecast since August 2014.

     

World Economic Prospects Monthly

Overview: Outlook darkens as coronavirus spreads

• ▀ What began as a supply shock in China has morphed into something much more serious. The effects of financial market weakness and the disruption to daily life around the world will trigger lower consumer spending and investment on top of the disruptions to the global supply chain. We now expect global GDP growth to slow to 2.0% this year from 2.6% in 2019, before picking up to 3.0% in 2021. But a global pandemic would lead to a far bigger slowdown this year.
• ▀ China seems to have made progress in containing the spread of the coronavirus, but the slow return to business as normal has prompted us to cut year-on-year GDP growth in Q1 from 3.8% to 2.3%, the weakest in decades. But we expect a healthy growth rebound in Q2 which will also provide Asian economies with a lift.
• ▀ It is isolation policies not infection rates that determine the economic impact. Outbreaks around the world are leading authorities to announce a growing list of measures to curb the virus spread. At a global level any Q2 rebound will thus be small at best. We expect investment in the advanced economies as a whole to contract on a year-on-year basis in Q2 for the first time since the global financial crisis, while annual household spending growth may slow to its lowest since the eurozone crisis.
• ▀ Our baseline assumes that the global economy will return to business as usual in Q3 and that some catch-up will result in robust H2 GDP growth. Combined with favourable base effects in early-2021, this is expected to result in world GDP growth averaging about 3% in 2021.
• ▀ Since January, we have cut our 2020 global GDP growth forecast by a hefty 0.5pp. But larger revisions may be required if the disruption triggered by shutdowns and other responses to coronavirus proves longer than we assume currently or if more draconian actions are needed in the event of a global pandemic. Our scenarios suggest that the latter could push the global economy into a deep recession.

     

How robots change the world

• ? The global robotics revolution is rapidly accelerating, as fast‐paced technological advances converge. This will transform robots’ capabilities and their ability to replace human workers, including in services where robot use is also set to rise steeply.
• ? The global stock of industrial robots multiplied three‐fold over the past two decades, to 2.25 million. Trends suggest it will multiply even faster in the next 20 years, reaching as many as 20 million by 2030, with 14 million in China alone.
• ? The rise of the robots will boost productivity and growth, and create new jobs, some in yet‐to‐exist industries. We estimate a 30% rise in robot installations by 2030 would create around $5 trillion in additional global GDP in today's prices.
• ? But existing business models will be disrupted and jobs lost – we estimate up to 20 million manufacturing jobs by 2030. Each new industrial robot eliminates 1.6 manufacturing jobs on average and almost twice that in low‐skilled regions.
• ? Job losses will vary greatly across countries and regions, with the toll falling disproportionately on lower‐skilled workers and on poorer local economies, aggravating social and economic stresses. The challenges for governments and policy‐makers are daunting at a time of already growing political polarisation