• Gary Reader, Leadership |

The only thing certain about the current global economic outlook is that it is uncertain. We still don’t know when the pandemic will be over, and what will be the comparative impact of the immediate health crisis and subsequent economic dislocation.

Uncertainty doesn’t have to mean paralysis. It can also mean opportunity – applying plausible and credible estimates on the timing and path to economic recovery is essential to making strategic decisions for the future. To help clients maximize this opportunity, KPMG member firms have brought together our best and brightest economic minds to prepare a set of scenarios that represent a range of ideas as to how the economic impact of this pandemic may evolve over the short to medium-term. 

The basics

There are many assumptions that underlie any economic model, but the key ones which underpin our thinking are:

  1. COVID-19 began as a supply-side shock. Our central (read: best) case scenario is based on the optimistic assumption that the worst of the health crisis peaks for most countries and territories in Q2 2020, and the world economy begins to recover from Q3 onwards. The downside (read: pessimistic) scenario presumes the virus re-emerges in most economies in a second wave (or extended first wave) and those countries and territories are required to adopt partial lockdown measures again.

  2. The longer-lasting uncertainty lies in the shock to demand – productivity can be dialed back up to an extent as lockdown lifts, but you can’t force consumption. So when and how quickly will economic activity and employment rebound? In attempting to answer these questions, the macro structure should be considered – what components of GDP get hit the hardest, what do the recovery profiles look like, and how does government policy impact the structure?

  3. It is an external shock, which may change the way that governments and central banks are willing to respond – unlike 2008, it is not a bail out of an industry or a country that ‘got itself into trouble’. It is also a largely synchronized shock: according to the World Bank, more economies are expected to be in recession in 2020 than in recorded history. 

The outlook

First, what is everyone else saying? The IMF’s latest forecast projects a 4.9% contraction in global GDP in 2020, growing by 5.4% in 2021.[1] In comparison, the World Bank recently forecast a 5.2% contraction[2] in global GDP in 2020, with a 4.2% rebound in 2021. The OECD’s June Economic Outlook[3] is less optimistic in both of their scenarios. If we avoid a further major outbreak, global economic output is set to fall by 6% this year, while a second wave of infections in 2020 could see a drop of 7.6%. In short, they vary significantly.

Our view is partially more optimistic – our anticipated drop is shallower than many of these forecasts. Our central scenario (blue line) hits the bottom with a 7.9% decline in global GDP in Q2 2020, with a quick rebound of 7.5% in Q3 and 2.8% in Q4; this means a drop of around 4.1% globally in 2020, before rising again by 6.6% in 2021. This is primarily due to a comparatively much stronger outlook for China, as well as solid rebounds in Eastern Europe, Latin America and the remainder of East Asia by Q3 2020.

But how bad could it get? There could be a stronger than anticipated hit to global growth in Q2 2020, with a decline of 8.2%, with a smaller uplift of 5.9% in Q3 and 2.8% in Q4, with most regions potentially experiencing double digit hits in Q2. But although some countries and territories may experience another drop in quarter-on-quarter GDP growth as a possible second wave of the virus hits in the latter half of 2020 or early 2021, year-on-year global growth may likely resist this ‘W’ recovery, declining more steeply by 7.9% in 2020 and recovering by 4.6% in 2021 and 3.0% in 2022.

Of course, when we say ‘recover’ and ‘rebound’, this does not necessarily mean to pre-pandemic levels; it could take until the latter half of 2021 to return to 2019-Q4 levels. And some countries and territories may fare worse than others; the downside scenario incorporates potential double-digit hits to annual GDP growth in some of the world’s largest markets, with recoveries to 2019-Q4 levels not expected until 2024 or later.

Why do we think differently to the other global forecasters? Our economic analysis integrates Eurasia Group’s predictive political intelligence to help guide KPMG professionals’ thinking on how the health crisis is likely to be managed going forward – that is, how the health vs. economics political equation will be answered in major markets, and how long lockdown restrictions will persist.

The future may be uncertain, but integrating plausible, in-depth political and economic scenarios into your investment frameworks, financial models, business planning and risk management processes can help you identify and prioritize the critical risks - and opportunities - facing your business. Please feel free to get in touch (mail to:go-fmgeopolitics@kpmg.com) for our analysis on your specific market.

With thanks to Dr. Brendan Rynne (Chief Economist, KPMG Australia) and his team for undertaking the analysis, as well as Eurasia Group and Chief Economists from across the network of member firms for their contribution. More information on our modelling tool, assumptions and variables (PDF 50 KB) are available here.

NIESR (April) refers to latest global macroeconomic forecasts prepared by the National Institute of Economic and Social Research (NIESR) which were released in late April 2020 and which incorporate expectations of how C19 will be impacting economic activity on a country-by-country basis.


  1. https://www.imf.org/en/Publications/WEO
  2. https://www.worldbank.org/en/news/feature/2020/06/08/the-global-economic-outlook-during-the-covid-19-pandemic-a-changed-world
  3. http://www.oecd.org/economic-outlook/june-2020/