Looking Beyond the Many Recessions


  • We see a sharp contraction in economic activity around the world in the first half of the year as measures to combat the spread of COVID-19 have forced businesses to close and consumers to shelter in place.
  • Yet the unprecedented fiscal and monetary policy stimulus enacted to date, along with a gradual easing of quarantine measures, will likely lead to a rebound in activity starting in the second half of this year.
  • Still, economic activity may not reach 2019 peak levels for some time, and risks remain tilted to the downside given possible delays in containing the virus and the risk of a second wave of infections.

Nations around the world are facing unprecedented challenges in confronting the COVID-19 health crisis. In addition to trying to save as many lives as possible, policymakers are grappling with plummeting business and consumer activity amid near-term fears and longer-term uncertainties, and they are responding with dramatic monetary and fiscal actions to bolster industries, businesses, and individuals (see Figure 1). Results of these extraordinary efforts will vary across regions.

As we discuss in our latest Cyclical Outlook, “From Hurting to Healing” by Joachim Fels and Andrew Balls, we expect the global economy and financial markets to transition from intense near-term pain to gradual healing over the next six to 12 months (see Figure 2). However, there is the risk if not the likelihood of an uneven recovery, with significant setbacks along the way and some permanent damage.

Expanding on those views, here we assess the forecast for major economies, drawing insights from our regional portfolio committees and investment professionals.

Figure 1 shows 2020 fiscal policy measures of major economies as a percentage of each economy’s total GDP. The U.S. has 7% discretionary measures and 21% liquidity provisions, totaling 28% of GDP. The euro area has 6% discretionary, 20% liquidity provisions, total 26%. The U.K. has 6% discretionary, 15% liquidity provisions, total 21%. Canada has 5% discretionary, 15% liquidity provisions, total 20%. Japan has 10% discretionary and 10% liquidity provisions, total 20%. China has 6.5% discretionary and 6.5% liquidity provisions, total 13%.Figure 2 shows PIMCO’s central forecast path for major economies’ GDP, indexed to 100 at the end of fourth quarter 2019. We forecast all the developed economies shown will experience a deep plunge in the second quarter of 2020, with the euro area seeing the steepest decline. China will likely see its trough in the first quarter of 2020. Following the trough, we forecast a gradual recovery.