2020 Mid-Year Outlook: COVID-19 Pandemic Reframes Narrative

If our tone at the end of last year was grim, it wasn’t grim enough. In our 2020 Outlook, At the Cliff’s Edge, published last December, we cautioned that the global economy was due to face more turmoil in the year, but were cautiously optimistic about a Sino-US trade truce driving modest global growth. However, the onset of a global pandemic has seen economies collapsing quicker than during the Great Depression and increased volatility across markets than ever before – and all of this while many of us were confined to home.

For the rest of the year, the economic consequences of the pandemic have set global growth on course for its worst yearly outturn since World War II. We align with the view that without a vaccine, it is unlikely that economic activities will pick up pace anytime soon, given the risk of spread which could force the institution of a fresh round of lockdowns. Thus, we see no respite in sight for global economic activities over the rest of 2020.

On crude oil, although we expect a rebound in demand, as major economies emerge from lockdowns, we think this will be gradual and will likely not return to pre-COVID-19 levels before the end of 2021. On supply, recent OPEC+ cuts may not be enough to offset returning U.S. shale oil, Libyan production, and a still massive 1-billion-barrel overhang in global oil inventories, which we expect will only start shrinking in Q4-20 and the first quarter next year.

Considering the aforementioned, we do not think the price of Brent crude oil is likely to sustain above USD40.00/barrel in the short-medium term. Thus, we lower our 2020 oil price forecast to USD38.71/barrel from USD50.00/barrel.

Economic growth across the Sub-Saharan African (SSA) region has not been spared. The unintended consequences of the great lockdown instituted by the respective governments have included widespread job losses, supply chain breakdowns, and economic disruptions. We understand that the prices of major commodities, save for Gold, have sustained a downward spiral, as global demand falters, and thus, compounding the negative impact of the pandemic on many SSA countries.

For the rest of 2020, the economic landscape across the SSA region is expected to endure its worst year yet, as the impact of the COVID-19 outbreak continues to wreak havoc. For clarity, while we expect the region’s growth to nosedive into its first recessionary territory in 25 years, less diversified SSA-commodity producing countries will be the worst hit, given the rapid pace of decline in commodity prices.

Cordros Research