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The Impact of Coronavirus on the Global Economy

May 2020

The Coronavirus (COVID-19) pandemic is the most severe global crisis since WWII. COVID-19 restrictions have effectively stopped economies around the world, and the global economy is expected to enter a recession in 2020. However, the magnitude of the downturn will depend on the length of the restrictions. The severity of the crisis is likely to leave a long-term impact on the functioning of economies, supply chains and trade relations.

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Key Findings

COVID-19 has caused the global economy to collapse

Global supply chains are disrupted and production has stalled. Containment measures, such as social distancing, limit both aggregate demand and supply. On top of that, countries around the globe have closed their borders. These factors will lead to a global recession in 2020, the size of which will not have been seen since the Great Depression in the 1930s.

In the baseline scenario, social distancing restrictions are gradually removed by August 2020

Our baseline forecasts assume that strict social distancing successfully flattens the infection rate curve over 1-3 quarters, with infection rates below 10% in key economies and case mortality rates less than 1% on average.

The uncertainty surrounding the pandemic is modelled with a range of scenarios

Besides our baseline forecast, we model the uncertainty of depth and length of the pandemic with three scenarios. Under our most severe C19 Pessimistic3 scenario, up to half of the global population gets infected with the virus. The economic slowdown turns into a full-blown financial crisis as companies declare bankruptcies due to a severe supply and demand collapse in the economy. The real global economy contracts by 8-11% in 2020.

Countries are turning to record-breaking fiscal stimulus to stabilise the economic downturn

Governments around the world have record-breaking stimulus packages to aid economic recovery. However, the exact size of the response globally remains in constant flux. Given a novel global supply and demand shock, it is not currently clear how economies will react to fiscal or monetary stimulus.

The COVID-19 pandemic is likely to have a lasting economic impact

Supply chains are expected to get more diversified in future as companies will try to mitigate the risks of disruption. The automation trend in the labour market is expected to get a boost. Global decoupling could increase as US companies diversify away from their dependence on China.

Introduction

Scope
Key findings
The global economy and COVID-19
COVID-19 in context
Financial markets in risk-off mode as COVID-19 entered Italy
COVID-19 highlights need for supply chain diversification

Economic Outlook

Global economy will contract sharply in 2020
The COVID-19 pandemic impacts both supply and demand
In our baseline view, the pandemic peaks in June 2020
Three scenarios examine the impact of a more severe outbreak
Our view in short
Forecast real GDP growth in 2020 under different scenarios
US economy to face deepest recession since the Great Depression
China to stagnate in 2020
India’s real GDP to grow by just 2.0% in 2020
Eurozone among the worst hit regions in the world
Japanese economy to contract, with Tokyo Olympics postponed
The UK economy is hit significantly but downside risks are large
Fiscal stimulus a challenge with restrictions on expenditure
How are governments trying to mitigate the downturn?
What could alleviate the economic effects of the pandemic?
What could exacerbate the economic impact of the pandemic?
COVID-19 strikes economies differently than the 2008 financial crisis
Shape of recovery depends on capital accumulation
Global economy in a weaker position in 2019 than 2007
What we can and cannot learn from previous crises

Conclusion

COVID-19 pandemic could have long-term impact on economies
Key takeaways

About Our Analytic Capabilities

About Euromonitor International’s Macro Model
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