As fallout from the Covid-19 outbreak spreads around the world, the global economy is facing a recession, says Fitch Ratings.

In a new report, the rating agency said that the crisis is “crushing” global GDP growth. Fitch said it has slashed its global growth forecast for 2020 from 2.5% to 1.3%. It also cut its oil price forecast from US$62 per barrel to US$41.

“The level of world GDP is falling. For all intents and purposes we are in global recession territory,” said Brian Coulton, chief economist at Fitch Ratings.

Fitch said that its forecast revision sees global GDP for 2020 coming in US$850 billion lower than in its previous forecast.

“But we could very easily see an outright decline in global GDP this year if more pervasive lockdown measures have to be rolled out across all the G7 economies,” the rating agency said.

“While there is huge uncertainty, quarterly declines in GDP of 3% to 5% (not annualized) in a full lockdown scenario look feasible,” Fitch said.

“The risk is that we shortly see these abrupt interruptions happening simultaneously across all major economies as the global pandemic spreads,” Fitch noted.

Fitch said that the shock to the Chinese economy has already been “very severe,” with GDP likely falling by more than 5% in the first quarter.

“Falling GDP in China is virtually unprecedented and, in the near term at least, these numbers look worse than most previous hypothetical ‘hard-landing’ scenarios,” Fitch said.

However, the fact that the number of new Covid-19 cases in China has fallen sharply “should pave the way for a marked economic recovery” in the second quarter, Fitch said.

Fitch said it expects China’s GDP growth to drop to 3.7% in 2020 from 6.1% in 2019.

However, in a gloomier scenario, Fitch said that global GDP could fall, with Europe down by more than 1.5%, the U.S. dropping 1% and Chinese growth sliding to just over 2%.

“The high risk of escalating lockdown responses across the major economies means that the chances of a weaker outcome are very substantial,” Fitch said.

Looking further out, Fitch said that the emergency policy measures designed to limit the effects of the crisis should set the stage for a robust rebound — assuming that the health crisis eases.

“Rapid and large-scale macro policy responses are all about damage limitation in the near-term, but policy easing should help GDP normalize and recover quickly in the second half of the year on the assumption that the health crisis subsides,” Coulton said.

“However, the uncertainties here are huge and we are really only at the beginning of the process of trying to understand the full impact of the crisis on the world economy,” Coulton added.