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Economic recovery will not make up lost ground

This report provides an outlook for the global economy in the midst of COVID-19 and is produced with ICAEW's partner Oxford Economics, one of the world’s foremost advisory firms. Their analytical tools provide an unparalleled ability to forecast economic trends.

  • Second half of 2020 won’t make up for lost activity in the first half of the year
  • A gradual easing of lockdowns to see activity resume in parts of the economy
  • The global fiscal expansion is larger than during the global financial crisis

Under the assumption that the gradual unwinding of lockdown restrictions continues and broadens, global GDP is likely to bottom out in Q2. Oxford Economics’ forecast assumes that, at a global level, activity rises back to its Q4 2019 local peak in early 2021. For emerging economies such as China, the reversal of the early 2020 falls may be quicker. For typically slower growing advanced economies such as Italy that have been hit especially hard by the coronavirus outbreak, it will take substantially longer for the level of GDP to reverse their losses.

The timing and speed of the eventual economic recovery will depend on several factors including:

  • how quickly lockdown restrictions are removed;
  • the extent of voluntary social distancing after restrictions are eased;
  • the support provided by the monetary and fiscal response; and
  • the extent to which the COVID-19 outbreak triggers more sustained changes in behaviour.

In the short term, the speed of the recovery will depend on how quickly economies recover from lockdown. Lockdowns can be thought of as a blunt instrument to contain the spread of the virus when other less invasive forms of containment, such as widespread testing, contact tracing and individual quarantines, are not possible or those systems have become overwhelmed by the number of COVID-19 cases.

It is highly unlikely that the discovery of a vaccine or dramatic medical developments will occur before 2021. Such developments should eventually come, but without them the easing of restrictions will be gradual and the return to normality will be slow.

The available evidence suggests that some sectors will recover faster than others. Most workers are likely to return to work quickly once this becomes possible, helping the supply side of the economy to bounce back quickly. But individuals may continue to avoid other activities that are deemed non-essential, particularly those involving close contact with other people, such as visits to bars, restaurants and cinemas, suggesting overall demand may pick up more slowly than supply. Some firms that are reliant on complicated international supply chains may also find that they are unable to source components needed to restart production at maximum capacity.

The rebound caused by the relaxation of lockdown restrictions is not the only factor that points to stronger growth ahead. Some of the household spending weakness in H1 will reflect a deferral of spending. The end to lockdowns could thus see some pent-up demand being released. In addition, spending in the second half of the year may be further boosted in oil importing economies due to the recent collapse in the oil price.

Some of the exceptional monetary and fiscal policy support that has been unveiled will also help to boost spending as its full effects begin to be felt. In addition to policy rate cuts and aggressive balance sheet expansion by the Federal Reserve, the US Congress has passed four packages of coronavirus fiscal stimulus response, bringing the total of measures enacted in just over a month to $3tn, or 15% of GDP. More generally, it is estimated that the global fiscal expansion in response to the COVID-19 outbreak has been larger than that seen during the global financial crisis. Central bank policy rates are also close to or below previous lows.

US: Funds authorised by Congress

Nonetheless, it will take time for economies to fully reverse the falls in GDP seen in the early stages of this year. While employment should pick up sharply in H2, many industries will struggle with social distancing rules and are likely to permanently lay off some staff. Some businesses that closed down due to the lockdown will never reopen. Given this, and the likely cautious stance of most households and firms due to fears about renewed outbreaks of COVID-19, an immediate rebound in activity to pre-crisis levels is unlikely.

On balance, Oxford Economics expects global GDP to return to pre-crisis levels by about Q2 2021. Normally, fast-growing emerging markets are more likely to reverse the losses in GDP than their slower-growing counterparts. Advanced economies, especially those in Europe, are likely to see the most protracted recovery due to the larger scale of the COVID-19 outbreak and the need for more stringent lockdowns. This will exacerbate the region’s generally lower potential growth and, in some cases, the limited policy response.

However, each region will have its own particular experience with the crisis that will dictate the depth of its recession and the strength of its recovery.

2020 global GDP level

Global outlook

Overall, Oxford Economics expects global GDP to shrink by 4.7% in 2020. This is despite a strong rebound in the second half of the year where they project a 7.4% rise in the last two quarters of 2020. To put this in context, in 2009, the worst year for GDP growth during the global financial crisis, global GDP fell by ‘just’ 1.1%.

As we move into next year, Oxford Economics expects the quarterly pace of GDP growth to gradually slow to more normal levels. This is compared to as exceptionally weak 2020 which will see GDP growth reach 7% in 2021, the strongest annual growth rate since the 1950s post-World War II economic expansion.

Despite the robust resurgence in activity in late 2020 and throughout 2021, Oxford Economics expects the level of global GDP by the end of 2021 to still be 2% below the level they had expected in January, before the pandemic emerged. This shortfall will continue beyond 2022, reflecting a permanent scar on the economy.

Middle East

The Middle East is set for a sharp fall in 2020 in the face of the dual shock from the coronavirus and unprecedented oil market turmoil. Oxford Economics forecasts regional GDP to contract by 4.3% this year, the worst performance in recent history, significantly weaker than the 2% expansion they projected in January. The outlook has deteriorated markedly over the past few weeks. This is particularly the case for the oil-producing countries across the Gulf Cooperation Council (GCC), which have to contend with not only the lockdowns imposed that have slammed the brakes on non-oil activity, but now also the sharp oil output cuts agreed in an OPEC+ meeting in mid-April. The GCC economy is now seen shrinking by 3.9% on aggregate, with all countries experiencing deep recessions. Oxford Economics still assumes activity will begin to gradually strengthen in H2 as both demand and supply side disruption fade and economic recovery follows in 2021.

To date, the GCC has been relatively successful in containing the outbreak, with infection and death rates low-to-moderate by international standards. While much of normal activity remains restricted and borders are shut to visitors, the region’s two largest economies (Saudi Arabia and the UAE), are starting to unwind virus-related curbs. However, the sharp reduction in oil output, coupled with very low oil prices, is putting pressure on budget revenues, constraining governments’ ability to support activity. Support packages have generally been modest in size and narrowly focused, suggesting the bounce-back in demand in key non-oil industries, seen as the primary driver of the expected rebound, may be more gradual. High dependence on travel and tourism and expat workers will also likely weigh on recovery, especially in the UAE and Qatar.

Regional impacts of coronavirus

South East Asia

Oxford Economics has slashed the 2020 GDP growth forecast for the South East Asia (SEA) economies amid unprecedented lockdowns that will substantially cut domestic demand, and even weaker exports as global supply chains and external demand are severely affected by the pandemic. Restrictions on exports of some food produce to safeguard domestic food supplies will further dampen export growth. Oxford Economics forecasts most SEA economies to fall into recession in H1 with Thailand to be the hardest hit, given tourism and travel (directly and indirectly) account for 20% of GDP. The exception is Vietnam, which is relatively advanced in the easing of restrictions and is likely to outperform its Asian peers. That said, it will not be immune to the sharp slowdown in trade flows.

However, after a bleak first half, momentum is forecast to turn the corner in H2 2020 as Chinese import demand and global trade more generally start to recover, although a slower pace of normalisation in travel and tourism will continue to weigh on tourism-dependent economies. Authorities across the region have responded quickly with coordinated fiscal stimulus packages and monetary easing. This should not only prevent an even sharper downturn in domestic demand but also support the recovery in economic growth in H2, with GDP growth set to rebound to an average 8% next year, after recording a 1.9% contraction in 2020.


In China, Oxford Economics thinks that the worst may have passed as the pandemic appears to have been contained. They expect growth to recover from Q2 onwards as the economy is no longer being held back by supply-side disruptions. However, it is now facing challenges from weak domestic demand and especially faltering foreign demand, as much of the rest of the world falls into a deep recession due to lockdowns. Although they expect a recovery in consumption as daily life returns to normal, lingering fear of a return of coronavirus and uncertainty over income and job losses will weigh on consumption in the coming months. On a more positive note, investment prospects have improved, especially in new industries and infrastructure, which will both benefit from strong policy support. They also expect real estate investment to continue to pick up speed as property developers catch up on housing construction.

Meanwhile, policies rolled out recently such as cuts in taxes and interest rates will begin to support the economic recovery, and more policy support will come, though the easing will remain targeted and modest in size. Indeed, large stimulus remains unpopular in Beijing as it will add to leverage of non-financial corporations that are already seen as a risk to financial stability. Instead policymakers will likely accept low growth this year, given the prospect for a better 2021. Oxford Economics forecasts GDP to grow 0.8% in 2020, which would put the level of output 4.7% below their pre-coronavirus forecast. This will be followed by 8.5% growth in 2021 as both domestic and global economies recover, but the total level of output will remain at least 1.5% below the pre-coronavirus forecast for a few years.


Like all other regions across the world, Africa will endure a severe economic knock due to the dual global demand and supply-side shocks. Various African countries have imposed measures to curb the spread of COVID-19 but, with the exception of South Africa, lockdown measures have not been as stringent as those seen internationally. Nonetheless, borders being shut and restrictions on the movement of people will hold major adverse implications for these economies that are still characterised by substantial informal sectors that do not officially contribute to GDP, but whose day-to-day operations are critical in sustaining livelihoods for a large proportion of the population. Oxford Economics expects to see a widespread rise in unemployment, with job losses in both the formal and informal sectors. In addition, lower commodity prices and disruptions to global supply chains will compound these challenges, with the continent’s economically undiversified oil producers in particular coming under immense pressure.

Governments across the continent have launched various forms of policy stimulus measures which will soften the blow, but aggregate African output is still projected to contract by roughly 5% in 2020. African governments don’t have the fiscal arsenal available to developed economies and underdeveloped monetary transmission mechanisms in most countries will curtail these support efforts. Pressures are seen easing gradually from Q3 onwards, but the fact that lockdown measures are less stringent in the context of weak healthcare capacity and a population with generally weak immune systems raises the risk that the COVID-19 battle may be more protracted in Africa.