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April 29, 2020

Economic Outlook: Businesses warned of recession worse than the Great Depression – oil prices to bounce back – rising debts to slow recovery

By Paul Dennis

Bain & Company’s macro trends managing director Karen Harris has warned busineses to prepare for a two to three quarter recession.

“Based on our analysis, two months of heavy mitigation could result in the US permanently losing up to one-quarter of all business establishments, accounting for $4 trillion of revenue (about 10% of total national revenue).

“We expect other advanced economies to suffer disruption on that scale as well. Traditional, after-the-fact stimulus likely won’t be capable of containing and moderating that type of shock to a country’s economic structure.

“Barring a significant change in governments’ models for backstopping their respective economies, a global recession that is worse than the Great Recession is now the upper bound.”

Investment bank UBS has predicted a recovery to $43 per barrel in the price of Brent crude by the end of the year.

This is roughly double the current market price but still only two thirds the price it was trading at the start of the year.

The bank said in an update from its investment office: “While the oil market is heavily oversupplied this quarter, we expect it to move toward balance next quarter and become under-supplied in 4Q this year as lockdown restrictions are eased and oil demand picks up.

“We forecast Brent to recover to USD 43/bbl by year-end.”

Looking to the world beyond Covid-19, accountancy giant Delloitte’s chief economist Ian Stewart warned that rising debt levels will slow down economic activity: “The world had a growth problem before Covid-19. A great effort will be needed to ensure this crisis doesn’t make it worse.

“Government debt will need to be repaid, financed by higher taxes or whittled away through inflation. More indebted corporates and households have less headroom for investment, risk taking or discretionary purchases.

“A period of balance sheet repair is likely, with an intensified focus on cutting costs and paying down debts.”

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