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.
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.
Please click here for a summary of the key drivers behind our global outlook and describe where we see value across global fixed-income
markets or view the attached paper.