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Strategy Analytics: COVID-19 recession worst in terms of change in real GDP since Great Depression; real GDP to fall 10% to 15% in 2020

Current analysis by Strategy Analytics (SA) indicates that the severity of the COVID-19-induced 2020 Recession as measured by change in Real GDP will be unprecedented looking back to the Great Depression. The recession will disrupt Automotive, Consumer Electronics, Semiconductor, and IT infrastructure businesses worldwide before recovery in 2021, the firm said.

Two scenarios indicate that the damage from the worst economic cycle since the Great Depression will cause both consumer and B2B businesses to suffer starting with an economic plunge of more than 7% in real GDP (33% annualized) in major industrial economies in Q2.


Source: Strategy Analytics

In two scenarios, Strategy Analytics anticipates:

  • A minimum of a three-quarter recession beginning in Q2 20. SA has created two scenarios assuming a “U” shaped downturn. The first, a recession is three quarters in duration defined as “Deep U-shaped” recession and a more severe recession lasting four quarters and designated as “DeepXL U-shaped” recession. For 2020, the Deep U scenario drops real GDP in the US by -11.1% while the more severe DeepXL U drops real GDP by -14.2%.

  • The recession is global and affects the realization of each economy’s ability to achieve its potential real GDP growth by first constraining consumer demand and then cycling through an economic period driven by more traditional financial and economic factors such as unemployment, corporate balance sheets, consumer debt, capacity utilization, and investment.

  • The Deep-U scenario for the US produces a massive annualized decline of -33% in Real GDP in Q2 2020 followed by a -7.6% decline in Q3. The DeepXL-U scenario for the US also drops Real GDP in Q2 by -33% and then reduces Real GDP growth by -12.6% in Q3.

  • In both scenarios, for major mature economies such as the US, Europe, and Japan, Real GDP declines between -8% and -13% in 2020 before recovering to growth in 2021 in the 1.0% to 3% range.

  • The levels of annual decline in real GDP are projected to exceed those typical of normal business recessions since WWII. This is due to the extraordinary disruption caused by COVID shutting down large segments of the buying public from purchasing non-essential items, disrupting supply chains, and temporarily eliminating a range of consumer activities. This non- economic reduction in buying activities at this scale and duration is historically unique.

  • In general, global economies are projected to have low inflation and very low interest rates as central banks attempt to alleviate the effects of overcapacity compared with consumer demand and slack capacity in raw materials. Deflationary pressures are seen as a major concern in leveraged real estate markets as well as in the general economies.

The entire supply chain for digital products in our homes, our cars, and associated with our mobile lifestyles will experience significant damage during this downturn that is likely to be felt globally over the next three to four quarters. Q3 is also expected to show a decline in real GDP of 3% (12% annualized) with no growth in sight until Q2 2021.

—Harvey Cohen, President of Strategy Analytics and lead analyst for these scenarios

Globally, automotive sales and the consequent demand for automotive electronics are in free fall since March, with a potential decline of up to 25% for 2020 compared with 2019.

—Ian Riches, VP of Strategy Analytics Automotive Practice


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