OUR COMMITMENT
  • To empower members to confidently understand and navigate a continuously changing and complex global environment.

Business

Stratfor's Forecast on the Global Economy Anticipated a Slowdown - Before the Coronavirus

Michael Monderer
Senior Analyst for Global Economics, Stratfor
4 MINS READMar 17, 2020 | 20:21 GMT
Covid-19 has swept the globe. Were nations too soon to panic and too late to prepare?
Stratfor

In Stratfor's 2020 Forecast, Stratfor's Senior Analyst for Global Economics, Michael Monderer was clear about the risks to the  Global Economy. He wrote,

Uncertainty over the status of global trade agreements and the limited effectiveness of fiscal and monetary tools available to governments already running at extremely low interest rates will compound these local issues. While a single crisis at one time would be largely manageable, should crises occur in rapid succession or economic instability overlap in several places at once, it could rapidly snowball with global effect. Though we expect some partial easing of U.S.-China trade tensions, the deeper systemic differences between the two will not be resolved in 2020, if at all. The differing economic agendas of the United States, China and Europe leave little room for cooperation, increasing global economic risks.

Why was Stratfor's take distinct from the International Monetary Fund and others'? Michael Monder explains

At the beginning of the year, I was a bit more pessimistic than the IMF and some others with respect to the outlook for 2020, based on then-known downside risks.

The IMF was counting on the diffusion of US-China trade tensions plus recovery in several major emerging market countries for a pick-up in global growth from an already sluggish level. My colleagues and I didn’t see what became the phase one trade deal with China as addressing long-term problems in the relationship that would continue to fester over more than just the bilateral trade balance.

Nor did I see pickups in emerging markets to the extent forecast, especially given what became Argentina’s slow-motion default, continued unsustainable stimulus in Turkey, and India’s structural problems that had slowed growth decisively, among others. I also thought that record-high levels of international debt, combined with huge increases in corporate debt globally, plus prolonged negative interest rates that were a threat to financial stability could have an impact.

On COVID-19, I thought the initial forecasts of a one-quarter hit to China’s growth and a negligible impact on global growth were a bit too breezy, especially since the full extent of a possible pandemic was completely unknown. More care should have been given to a fuller analysis of adverse scenarios - which is now being done belatedly - rather than relying on assumptions that COVID-19 would mimic SARS in morbidity and mortality.

On COVID-19, I thought the initial forecasts of a one-quarter hit to China’s growth and a negligible impact on global growth were a bit too breezy, especially since the full extent of a possible pandemic was completely unknown. More care should have been given to a fuller analysis of adverse scenarios - which is now being done belatedly - rather than relying on assumptions that COVID-19 would mimic SARS in morbidity and mortality.

Of course, governments risk further panic after their understated (to say the least) initial reactions.

People were looking for assurances that governments would address a public health crisis preemptively and didn’t get that response. The result is further erosion of trust in governments and fear that they’re now overreacting with country-wide lockdowns.

In the United States, that’s stimulated the hoarding of the past few days and a flight by businesses from risky assets (both stocks and somewhat questionable bonds) into cash.

The Fed today announced a facility to support the short-term commercial paper market, which large corporations use for short-term funding, and it and the Treasury might have to support markets with added liquidity. One bugaboo of the Trump administration is avoiding what could be seen as a “bailout” like the 2008 Troubled Asset Relief Program (TARP), which was a big part of the populist backlash during the previous crisis.

Editor's Notes

You can read more of Michael Monderer's analysis at Worldview.Stratfor.com.

Stratfor is a RANE Company. We provide analysis and expertise to help you decipher what the news means for you and companies. If you're interested in learning how Stratfor and RANE can help you with analytical tools to visualize and anticipate those areas in the world where your interests and operations are at greatest risk, be sure to visit Stratfor.com/subscribe. Our experts can help you and your business stay ahead of the news, rather than chase it.

Get unlimited access with a Stratfor Worldview Subscription.

Connected Content

Regions & Countries
Topics

Article Search

Copyright © Stratfor Enterprises, LLC. All rights reserved.

OUR COMMITMENT