Is the Global Economy Set for a 2.6% Contraction This Year?

As expected, the coronavirus pandemic will tamp down any positive growth expectations for the global economy. As such, the Korea Institute for International Economic Policy (KIEP) forecasted that the global economy will contract 2.6 percent in 2020, which represents a fall of 5.8 percentage points from the 3.2% growth forecast last November.

The latest figure is 0.4 percentage points off from the 3% contraction forecasted by the International Monetary Fund (IMF) back in April. The focal point of the pandemic, China, will see a 1.2% growth in 2020 based on the IMF’s forecast, while the KIEP expects 2.2% growth.

“China’s services sector has greatly expanded over the past few years, but it still accounts for a relatively smaller portion of the country’s GDP compared to other countries. This means China remained relatively isolated from the pandemic-caused deterioration in the sector,” a KIEP official said.

With the help of regulatory restraints from the Chinese government, KIEP is expecting China to be at full industrial strength quickly.

“China with far more tighter control of state affairs than other economies will help rapid resumption of the industrial development put on hold due to the pandemic. Once state-wide directives resume, the chemical and heavy industries can pick up sooner than previously thought,” the official said.

An Active International Option

Will the return of China’s economy be a predictive model for the rest of the world? If so, investors looking to get international exposure using an active strategy can look to the Goldman Sachs ActiveBeta International Equity ETF (GSIE). 

GSIE seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the Goldman Sachs ActiveBeta® International Equity Index. The fund invests at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index, in depositary receipts representing securities included in its underlying index and in underlying stocks in respect of depositary receipts included in its underlying index. The index is designed to deliver exposure to equity securities of developed market issuers outside of the United States.

Another fund to consider is the Natixis Seeyond International Minimum Volatility ETF (MVIN). MVIN focuses on developed markets and seeks to generate long-term capital appreciation with less volatility than typically experienced by international equity markets—the minimum volatility approach helps diminish portfolio risk.

MVIN gives investors:

  • Less volatile approach to diversify internationally
  • Long-term capital appreciation seeking less volatile international stocks
  • Actively managed ETF with the ability to adapt over time

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