Limping out of the lockdown

As the Covid-19 pandemic has triggered shutdowns around the world, the global economy is headed for its worst slump in post-war history. With severe containment measures extending into May, we now pencil in a contraction of global GDP by 3.5% this year.

Highlights:

  • As new Covid-19 cases flatten out, governments prepare for the exit from lockdowns. This will ease economic pain. But it is a fragile enterprise, given the risk of resurging infections.
  • The global economy is headed for its worst slump since WWII, with the recovery set to be protracted and disinflationary pressures likely to grow.
  • Bold and timely responses by fiscal and monetary policy help to cushion the fallout, supporting risk sentiment and Credit markets in particular.
  • European leaders seem set to agree only on a soft form of intra-European burden sharing. EMU sovereign risk will remain largely in the hands of the ECB, which seems determined to deliver.

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