Despite lower mortality rates than other recent epidemics, the impact of COVID-19 on the global economy and consumer markets has the potential to be significant for many reasons:
– Geographic spread
– Weak global economy
– The impact on China Known
Learnings from the Epidemic
Financial markets conditions worsened after COVID-19 entered Italy and as it entered USA, the situation grew worse.
Learning: Uncertainty about future recovery and financial shocks could exacerbate the crisis. The length of time it takes to recover has an impact on long term output, productivity and consumer habits.
What is Different: A complete halt in many sectors across countries is unprecedented. The COVID-19 pandemic crisis is in the real economy and present globally.
Global GDP will contract sharply in 2020:
– The COVID-19 pandemic has an enormous impact on the global economy.
– COVID-19 will severely impact both the supply and demand sides of the economy
– Countries turn to substantial fiscal policies.
– Our baseline forecast for global real economic growth in 2020 ranges from -1.5 to -4 percent, the lowest since the WWII
How is demand affected?
– Social distancing
– Uncertainty about the future
– Household and business financial constraints
How is supply affected?
– Supply chain disruptions
– Factory closures
– Uncertainty over the length of the restrictions
– Stockpiling by consumers
In Euromonitor’s baseline view the pandemic peaks by June-July 2020. The COVID-19 social distancing restrictions gradually removed in 2nd half of 2020. Around 1-10 percent of the global population gets infected.
The mortality rate for the virus averages 0.8 percent globally and fiscal policies are effective V/L-Shaped recession 38-48 percent probability.
US WILL FACE THE MOST SEVERE RECESSION SINCE
THE GREAT DEPRESSION AND INDIA’S REAL GDP TO GROW BY JUST 2.0 percent IN 2020.
– Real GDP growth will slow down to 2.0 percent in 2020.
– Main challenge will be balancing India’s fiscal gap.
– India may increase its exports postCOVID-19.
– The Indian government has introduced a US$ 22.6 billion economic stimulus plan
EUROPE: EUROZONE WILL BE AMONG THE WORST HIT REGIONS IN THE WORLD.
– Before the pandemic, long-term growth was already mediocre.
– The Eurozone is one of the worst hit regions globally.
– Italy is expected to contract by 9.0 percent in 2020 in real terms, Spain by 8.0 percent and France by 6.7 percent.
– Long-term debt concerns as countries
try to boost economies.
– The Eurozone will likely contract 7.2 percent in 2020 with significant downside risk.
UK: THE UK ECONOMY IS HIT SIGNIFICANTLY BUT DOWNSIDE RISKS ARE LARGE
– A nation-wide lockdown since 23rd March.
– Monthly retail fell by 6.0 percent in March 2020.
– Continuing Brexit negotiations raise risks.
– UK economy expected to contract by 6.7 percent in 2020.
Fiscal Stimulus A Challenge with Restrictions on Expenditure
Governments around the world have started implementing stimulus packages to aid economic recovery. However, the exact size of the response globally remains in constant flux. Given the intensity of combined demand and supply shocks, it is not currently clear how economies will react to fiscal or monetary stimulus. Challenges to fiscal stimulus include potential restrictions on government debt accumulation and administrative bottlenecks in allocating government funds and loans.
What Could Exacerbate the Economic Impact of the Pandemic?
– Declining consumption and investment.
– Greater mismatch between private sector cashflow problems and government fiscal/credit support programmes
– Current short-term travel bans grow out into long-term protectionist.
– Rising default rates and borrowing costs/risk premia trigger a financial crisis.
– The pandemic lasts longer and infects more people, it spreads
to emerging markets. Longer pandemic and private sector cashflow problems reduced cause bigger long-term capital and output declines
Long Term Impact
COVID-19 pandemic could leave long-term impact on economies.
– Global consumer expenditure is set to decline by 4.3 percent in real terms yearon-year in 2020.
– The COVID-19 pandemic will bring about lasting changes in consumer attitudes and behavior|
– Long-term increase in precautionary savings, falling consumption rates, increasing frugality
– Older consumers will have to resort to online grocery shopping
– COVID-19 will be a catalyst for a permanent shift to a cashless world.
– COVID-19 will bring the global economy to a deep recession but the exact magnitude of it will depend on the length of COVID-19 restrictions
– Countries are turning to significant fiscal stimulus to stabilise the economic downturn
– COVID-19 highlights need for more robust government and business planning
– The COVID-19 pandemic is likely to leave a lasting impact in the global economic structure and consumer behavior.