Global Economy Braced

The pandemic has inflicted enormous human costs right across the globe. The worldwide response, which has involved governments imposing a range of lockdown measures, will inevitably have a huge impact on global economic activity.

Contraction across Europe

The release of first quarter GDP data provided a foretaste of the economic damage the pandemic is set to wreak. In the UK, for example, output fell by 2% across the first three months of 2020, with the economy shrinking by a staggering 5.8% in March alone.

Data for the 19-country Eurozone showed an even larger decline, with output across the bloc falling by a record 3.8% in the January– March period. France and Italy both plunged into recession, with quarterly contractions of 5.8% and 4.7%, respectively, while the German economy also slipped into recession with first quarter GDP down 2.2%.

US and Japan economies shrinking

According to preliminary estimates, the US economy shrank at an annualised rate of 4.8% in the first quarter, ending a record streak of expansion stretching back to 2014. And the Japanese economy, which was already struggling following a sales tax hike last October, also fell, contracting at an annualised rate of 3.4% in the opening three months of 2020.

China’s economy also reeling

The growth rate in China fell sharply as well, with the world’s second-largest economy shrinking at an annualised rate of 6.8% during the first quarter. The Chinese authorities have now abandoned setting a growth target, which may be an acknowledgement of the challenges facing its struggling economy amid heightened international hostilities due to the COVID-19 fallout.

‘Sharpest downturn since 1930s’

Continuing uncertainties surrounding the future spread of COVID-19 and the likelihood of developing a successful vaccine obviously make it difficult to predict the future path of the global economy. However, the International Monetary Fund’s latest assessment suggests we are facing the steepest economic downturn since the Great Depression.

Potential rebound?

While the IMF has stressed that its predictions are marked by ‘a higherthan-usual degree of uncertainty’, it is forecasting a rebound next year with the global economy expected to grow at a rate of 5.4% as activity normalises1. However, if a second outbreak did occur, that could effectively keep the world in recession for a second consecutive year.

1IMF, 2020

It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily
be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.

The information contained within this newsletter is for information only purposes and does not constitute financial advice. The purpose of this newsletter is to provide technical and general guidance and should not be interpreted as a personal recommendation or advice.

The Financial Conduct Authority does not regulate advice on deposit accounts and some forms of tax advice.

FRAUD GOES VIRAL – IF IT SOUNDS TOO GOOD TO BE TRUE, IT PROBABLY IS

UK fraud prevention groups are warning individuals to be extra vigilant following a huge increase in the number of scams seeking to exploit the pandemic; as these scams increase in sophistication, we are all vulnerable.

Your best tactic is to equip yourself to stay ScamSmart; you can do this through checking the FCA website, www.fca.org.uk/scamsmart. Action Fraud2 revealed there was a massive 400% increase in reporting of scams in March. As scams continue to increase in sophistication it is harder than ever to distinguish them from the real thing.

Remember:

  • Reject offers that come out of the blue
  • Do not click on links from senders you do not know
  • Be wary of deals that sound too good to be true
  • Never give out personal details
  • Take the time to make checks and seek financial guidance.

Here to help

If you are unsure about any financial opportunities, please contact us first.

2Action Fraud, 2020

PENSIONS WITHDRAWALS – CONSIDER YOUR OPTIONS

The latest data3 on flexible payments from pensions shows that in Q1 2020, almost £2.5bn was withdrawn from pensions – a 19% increase on Q1 2019 withdrawals, and the highest recorded Q1 of any year since pensions freedoms began. Although the average amount withdrawn per person was £7,100 (down 3% from Q1 2019 £7,300), the total value of flexible withdrawals from pensions since flexibility changes in 2015 has now exceeded £35bn.

Make the right decision Before taking any action, it is sensible to consider all your options. Pensions are designed to provide you with an income throughout your retirement. Taking out more money than you need to, or starting sooner, will mean you have less to live off in the future.

3HMRC, Apr 2020