AMP Capital’s senior economist Diana Mousina said a global downturn sparked by the outbreak of the coronavirus would start to improve mid-year assuming countries around the world continue to take strong quarantine measures to slow the spread of the virus.

The $200 billion manager expects Australia will fall into technical recession before the US, as weak demand from China hurt growth in the March quarter, while the full impact from global quarantine measures would hit the three-month period through June. Mousina said Europe would follow Australia into a downturn, but it won’t hit the US until the June and September quarters. Meanwhile China, the world’s second-largest economy, may avoid a recession altogether.

“Europe has changed our global outlook so we now think we will see a technical global recession,” Mousina said in an interview. “But China have really sacrificed short term economic growth to get the virus under control, so we don’t think they will go into a recession. We think policymakers will stimulate the economy enough in the second quarter.”

Last week, the former economic adviser to US president Donald Trump warned that the chance of the global economy falling into a deep recession from the global pandemic was “pretty close to 100 per cent.”  The OECD has also halved its global economic growth forecast to 1.5 per cent, while the chief economist at IFM Investors, Alex Joiner, said he expects to see a “u-shaped recovery” where things will gradually start to improve after a few quarters of negative growth.

“We are not thinking this (crisis) will continue for the a whole year,” she said. “It will start to improve, probably mid year, but a lot of that scenario rests on the assumption that we will see more quarantine measures.”

Mousina said the share market, which has already slumped more than 30 per cent from the peak in February and erased trillions of dollars in value, may fall further because the numbers of infected cases outside of China were still climbing. Even so, she said equities should also start to rebound in the second half thanks to the economic stimulus being pumped into the global financial system.

Mousina said the global pandemic, which has infected more than 190,000 people and killed more than 7,000 people worldwide, had also made the US presidential election much closer to call. She added that incumbent presidents historically don’t tend to get re-elected during a recession.

“Governments will try and stimulate as much as they can and the US will do as much as they can to stem a downturn because there is an election coming,” she said. “At the end of the day this is a health crisis.  While it has turned into an economic situation, it’s not an economic crisis.”

Sarah Jones is the deputy editor of Investment Magazine. She previously worked for Bloomberg News in London for more than 12 years covering equity markets and global asset management. Prior to moving to the UK, she worked for Australian Associated Press in Sydney covering economics and monetary policy.
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