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.
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.
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.
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.
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.
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.
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