PERSPECTIVE3-5 min to read

Why we upgraded our forecast for global GDP growth



Schroders Economics Team

We have upgraded our forecast for global GDP growth for 2020 to a decline of 4.6%, a better outcome than our previous forecast of a fall of 5.4%.

What led us to upgrade our forecast for global GDP in 2020?

The US economy turned in a better-than-expected performance for the second quarter of 2020 and that is the main factor behind our upgrade to the global forecast. We increased our forecasts for Japan and the emerging market countries too, while we reduced our forecasts for the eurozone and UK.

We expect a further recovery of the global economy to take place in Q3, before growth slows down in the last three months of the year.

Longer term, we still think that the global economy will experience a U-shaped recovery, meaning that it will be gradual (rather than a rebound in a V-shape as was hoped early on in the pandemic).

What else did we factor in?

Inflation is expected to remain low. We also anticipate a change in occupancy at the White House, although the US Congress is expected to remain split after the election. Should this be the case, it would limit the new US President's ability to use tax policy to boost the US economy.

However, international trade tensions may ease and this might help US-China relations. We still see the risk of a second wave of Covid-19 cases.

What happens if we look out to 2021?

For 2021, our forecast for global growth is now 5.1% (previously 5.3%). The return to positive growth will be helped by supportive fiscal and monetary measures from governments and central banks.

We have factored in the arrival of a vaccine midway through 2021. This is critical in overcoming business and consumer caution which is likely to hold back investment and spending otherwise.

How does the picture differ across regions?

US: after a better-than-expected performance for Q2 2020, we have now revised our US forecast upwards from -8.2% to -4.1% for the full year. If Joe Biden wins the US presidency, we would expect US growth to receive a minor boost as a result.

Eurozone: we reduced our growth forecast from -6.1% to -7.8% for 2020. There was a worse-than-expected second quarter as, overall, the share of the eurozone economy affected by Covid-19 was greater than previously expected.

UK: growth cut from -8.5% to -10.4% for 2020. Similar to the eurozone, the Q2 GDP release showed that GDP fell by 20.4%, meaning about 30% of the economy was hit by lockdown – up from 20% hit in Q1.

Japan: the second virus wave hampers the recovery near term but fiscal support, and an upturn in the industrial cycle and a recovery in global trade, should help growth reach -4.6% in 2020, up from our previous forecast of -5.4%.

Emerging markets (EM): ‘First-in, first out’ from Covid-19 for China, which returned to GDP growth in Q2. India surprised on the upside too, leading us to revise the EM growth outlook slightly higher to -2.7% in 2020. We increased the 2020 Brazil-Russia-India-China (BRIC) forecast to -1.6% (from -2.2%).

What other scenarios might we face?

We have updated our scenarios to reflect the shifting balance of risks. The historic decision by the EU to set up a recovery fund offers much needed support and marks a step toward fiscal union. This and the central bank’s decision to expand its support programme mean we no longer see a meaningful risk of a crisis in the eurozone.

We continue with the different letter shaped recoveries (V, W and L) and our Modern Monetary Theory (MMT) fuelled fiscal expansion (whereby central banks have to directly fund government spending).

We introduce a “Democrat sweep” scenario where the Democrats win the US presidency and the Congress. This gives the new US President more scope to expand fiscal policy and consequently results in a rise in growth and inflation compared to the baseline scenario.

Our largest risk scenario is Covid-19 second wave, though the overall balance of probabilities points towards a sharp global recovery.


Important Information

The contents of this document may not be reproduced or distributed in any manner without prior permission.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect nor is it to be construed as any solicitation and offering to buy or sell any investment products. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Any security(ies) mentioned above is for illustrative purpose only, not a recommendation to invest or divest. Opinions stated are valid as of the date of this document and are subject to change without notice. Information herein and information from third party are believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.

Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Derivatives carry a high degree of risk. Exchange rate changes may cause the value of the overseas investments to rise or fall. If investment returns are not denominated in HKD/USD, US/HK dollar-based investors are exposed to exchange rate fluctuations. Please refer to the relevant offering document including the risk factors for further details.

This material has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.


Schroders Economics Team


Economic views
Follow us

Contact Us

Level 33, Two Pacific Place, 88 Queensway, Hong Kong

(852) 2521 1633

Online enquiry: Please complete the web form below and we will reply as soon as possible.

Contact us

The investments mentioned in this website may not be suitable to all investors. The information contained in this website is provided for reference only and does not constitute any investment advice. Investors are advised to seek independent advice before making any investment decision.

Investment involves risk. Past performance is not indicative of future performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Please refer to the relevant offering document including the risk factors.

This website is intended for Hong Kong residents only. Non-Hong Kong residents are responsible for observing all applicable laws and regulations of their relevant jurisdictions before proceeding to access the information contained herein. Schroder Investment Management (Hong Kong) Limited is regulated by the SFC. The website (excluding Schroder Provident Plan related pages) has not been reviewed by the SFC.

The website is issued by Schroder Investment Management (Hong Kong) Limited.