Market Outlook

Q2 2020 Global Outlook

1 May 2020

Global Outlook

Western Asset provides their Q2, 2020 Global Outlook and insights into the key drivers of fixed income markets.
Executive Summary:
 
  • Western Asset’s base case outlook is for a longer, U-shaped global economic recovery. This is premised on the view that near-term growth will be severely impacted, but that this shortfall will prove to be largely transitory as policymakers push to resuscitate economic activity.
  • Possible declines in US GDP growth could be much more severe than even what was observed during the late stages of the global financial crisis. However, we believe that the economic bounce-back can be strong and relatively quick.
  • We currently expect the eurozone to contract by around 6% this year, but the contraction will become more pronounced with every week that restrictive measures are necessary to contain the viral outbreak.
  • The heterogeneity of Asian economies will continue to reflect the divergence in growth between economies more closely linked to China’s consumption and the Asian tech supply chain, as well as those that are more endogenously driven.

Following the sharpest monthly decline in risk assets on record, which occurred due to the unexpected COVID-19 pandemic and oil price shock, Western Asset’s base case outlook is for a longer, U-shaped global economic recovery. This is premised on the view that near-term growth will be severely impacted, but that this shortfall will prove to be largely transitory as policymakers push to resuscitate economic activity. On this front, significant central bank policy easing, extensive liquidity provisions and enhanced fiscal stimulus are already underway. Together, they should help temper the negative impact of restrictive social distancing policies on global economies and enable markets to function more smoothly. As the actual timing of any eventual recovery will be tied to the length and severity of the pandemic—a key uncertainty at this point—our portfolios are positioned to withstand further market volatility, yet remain flexible enough to capture exceptional value opportunities as they appear. Here, we provide a summary of the key drivers behind our global outlook and describe where we see value across global fixed-income markets.

Past performance is no indication of future performance.

Legg Mason Asset Management Australia Ltd (ABN 76 004 835 849 AFSL 240827) is part of the Global Legg Mason Inc. group. Any reference to ‘Legg Mason Australia’ is a reference to Legg Mason Asset Management Australia Limited. The information in this article is of a general nature only and is not intended to be, and is not, a complete or definitive statement of the matters described in it. The information in this article does not constitute specific investment advice and does not include recommendations on any particular securities. These opinions are subject to change without notice and do not constitute investment advice or recommendations.