Economic Rebound Gathers Pace, But Second Wave of Layoffs Possible

• Fitch Solutions has reduced its global growth forecast slightly since its June publication, and now anticipates a contraction of 3.9% for the global economy (from 3.6% previously). This change is largely on the back of revisions to economic growth in countries such as Belgium (-8.0%), the UK (-7.7%), South Africa (-7.0%), Thailand (-5.4%), Poland (-4.1%) and Australia (-3.3%).
• However, the agency does note several risks to this view. Firstly, the return to normality looks quite difficult given the second waves of infections. While they may not result in blanket lockdowns, the authorities in China and the US have imposed multiple localized lockdowns, while Australia has closed its internal borders to stop the spread of the infection. This suggests that the return to normality might prove to be quite challenging, which could sap momentum from the nascent recovery.
• Secondly, another wave of infections and a weak pace of recovery could result in a second wave of layoffs by businesses, since profitability would remain under pressure. This in turn could keep unemployment elevated for a sustained period, which would be negative for private consumption and headline growth.

(Source: Fitch Solutions)