COLUMN-Wild variation in recession calls underlines volatility shock: Dolan

(The author is editor-at-large for finance and markets at Reuters News. Any views expressed here are his own.) By Mike Dolan LONDON, April 3 (Reuters) - Forecasting the depth and duration of the coming world recession is like playing "pin the tail on the donkey" and the sheer range of outcomes emerging leaves markets flailing blindfold. Measuring how almost $90 trillion of annual global output will be hit by the pandemic and the economic standstill called to stop it is complicated by uncertainty over the disease's trajectory and the impact of the biggest monetary and fiscal rescue on record. The unprecedented shock is tough for markets that, while priding themselves on being forward-looking, continually riff off the recent past and have been blindsided twice in just over a decade after years of apparently serene conditions. The "Great Moderation" of ebbing volatility in world output that defined two decades before the last crash was only briefly disturbed in 2008/09 and its resumption afterwards left many assuming the Great Financial Crisis was something of a one-off. In just three weeks, the world's top financial economists have raced out projections of what is set to be first contraction in global output for 12 years, probably the deepest since the 1930s -- and perhaps, due to the scale of government support mobilised, the shortest-lived in recent history. The blizzard of estimates underscores the sudden sharp resurgence in both macro and market volatility. Updated calls from six global investment banks show second-quarter U.S. GDP ranging from a relatively mild 9.5% annualised contraction -- forecast by UBS -- to the plunge of as much as 42% predicted by Nomura. Q2 2020 %q/q, J.P. Goldman Nomura Morgan UBS Deutsche saar Morgan Sachs Stanley Bank Global -1.2 - -6.2 - -0.8 - China 57.4 - 52.4 - 38 6.6 United -14 -34 -41.7 -38 -9.5 -9.5 States Euro -22 -38.4 -43.4 -32.9 -22.9 -11.4 area Japan -1 -7.2 -12.4 - -18.2 -3 For the year and world as a whole, projections swing from a near-1% overall expansion of global GDP in 2020 to a 4% tumble -- a difference in outcomes spanning more than $4 trillion. Asset managers are similarly divided. BlackRock's Amer Bisat reckons the world economy could contract by 11% in the first half of 2020, losing $6 trillion in output. Legal & General Investment Management's chief investment officer Sonja Laud said her team is working on the assumption that global output fell by 20% in the year through April. The 20% drop in the MSCI world stock index so far this year chimes with the latter but the array of calls on what will happen supports equity volatility gauges still above 50%. JUST HOW RARE ARE GDP SHOCKS? Deutsche Bank strategist Jim Reid says data going back centuries show major economies shrank 10% or more during the Depression of the 1930s, times of war and pandemics such as the 14th century Black Death. Mostly, there were "no central banks to step in and stabilise the situation". Deutsche's forecast of a 6.5% contraction would make 2020 the third worst year for the British economy since 1900, after 1919 and 1921. Contractions of 12.9% in 1932 and 11.6% during post-war demobilisation in 1946 mark the sharpest U.S. slumps, with 2020 only the 18th worst of 230 years if Deutsche's forecast of a 4.2% drop in GDP proves correct. But the swings of the past 40 years have been more subdued. Many economists blame this "Great Moderation" for why so few people saw the financial crisis of 12 years ago coming: globalisation and evaporating inflation encouraged ever-cheaper credit and what seemed to financial markets entirely rational risk-taking and leverage that eventually exploded spectacularly. On the eve of the coronavirus pandemic, measures of rolling five-year global GDP volatility compiled by JPMorgan hit their lowest on record. For an interactive version of the chart below, click here https://reut.rs/3bMcJzK. JPM strategist Jan Loeys says one of the reasons has been that governments have grown intolerant of any downturn whatsoever and have met threats like the 2011/12 euro zone crisis or 2014/15 oil price plunge with huge stimulus to calm markets and support output and jobs. The multi-trillion monetary and fiscal response to this year's shock may be appropriate public policy but shows the same pattern and may well be successful in igniting a quick recovery, suppressing GDP volatility and borrowing rates once more. Where will it end? For Loeys, the gradual loss of policy ammunition and accumulation of government debts now points inexorably toward some form of helicopter money and direct central bank funding of government deficits. And this, he says, is "playing with fire" because the absence of GDP volatility was in many ways just the flipside of years of suppressed inflation. If central banks end up migrating from quantitative easing to direct funding of government spending, then long-dormant inflation may finally reawaken -- and truly end an era. (By Mike Dolan; Table and charts by Ritvik Carvalho, with JPMorgan data; Editing by Catherine Evans Twitter: @reutersMikeD)