Forecasting Global Trade in a Pandemic, Part I

Last month we noted that our forecast had been “based on the optimistic view that by the end of March or early April some form of normalcy will have returned to trade.” A lot can happen in one month, with the economic outlook over the past 30 days (and, in particular, the past 10 days) seeing one downgrade after another. There is no longer any doubt that the impact of COVID-19 on the US economy will be severe; the question is how severe will that impact be and for how long?

This is where opinions begin to differ. While Hackett Associates does not endorse any specific number, consider the following outlooks for US gross domestic product released in the past week:

• US Congressional Budget Office: second quarter decline of at least 28 percent at the annualized rate that the Bureau . of Economic Analysis will report

• Fitch Ratings: a decline of 3.3 percent in 2020 (and a decline of 1.9 percent globally)

• Morgan Stanley: a decline of 5.5 percent in 2020 with a decline of 38.0 percent in the second quarter

• Goldman Sachs: a decline of 6.2 percent in 2020 with a decline of 34.0 percent in the second quarter

• Bank of America: a decline of 10.4 percent in 2020 with a decline of 30.0 percent in the second quarter

Our forecast of imports is not driven by GDP estimates, but is based on a more optimistic point of view than the most dire outlooks. Hackett Associates assumes a short, sharp recession: economic activity slows dramatically in the second quarter with a rebound beginning in the third quarter and a slow return to normal in the fourth quarter. In comparison, the Great Recession in the United States officially lasted from December 2007 until June 2009, or three times as long. The difference is that the Great Recession was driven by a financial collapse caused by systemic issues with the economy at the time rather than a viral pandemic. The fundamentals of the US economy were sound prior to the pandemic, and there is hope that those fundamentals will still be there once the current crisis is past.