A US-based finance group on Thursday projected deep recession this year with global gross domestic product (GDP) falling 3.8%.
The Institute of International Finance (IIF) said in a report that India and China account for almost all of the weaker global growth picture.
It indicated that China is not repeating its very large stimulus of 2009, meaning that global activity and commodity prices are not getting the boost they did in the aftermath of the global financial crisis.
Additionally, India is experiencing a deep recession, unlike 2009 when GDP growth was positive.
“Taken together, these two things signal a very different recovery from the COVID-19 shock,” according to the report.
It also said that commodity-dependent Latin America is likely to lag relative to the recovery after the Great Recession, while trade linkages are likely to be a drag on Asian economies in close proximity to China and India.
Not pretty picture
According to the report, in the second quarter global GDP fell 11.5% year-on-year across advanced economies, while it fell 10% across emerging markets, excluding China and India due to their size.
These aggregations obscure a huge degree of variation across countries, with China growing at a pace of 3.2% year-on-year through the second quarter of 2020, in contrast to Peru where GDP fell 30.3%.
“The severity of recession is really quite unprecedented and — where activity is a positive outlier such as Turkey — stimulus is feeding depreciation pressure on the currency,” it said.
One of the most striking points that the report draws attention to is that what positive outliers there are may not remain so, because balance of payments pressure suggests the policy mix is unsustainable.
Compared to the recovery from the global financial crisis, the report concluded, the emerging markets’ recovery from the COVID-19 shock is likely to be shallower and more difficult to navigate.