Economic impacts of COVID-19: international outlook at the end of March
We can already experience some of the most evident impacts: sharp contractions in the level of output, household spending, corporate investment and international trade. But how far can the recession go, what can we expect for the near future?
In our blogpost we have gathered some of the analyses recently published in this topic.
The OECD has analysed the initial direct impact of government measures aimed to control the spread of the virus. According to their note, the
the initial direct impact of the shutdowns could be a decline in the level of output of between one-fifth to one-quarter in many economies, with consumers’ expenditure potentially dropping by around one-third.
The implications for annual GDP growth will depend on many factors, including the magnitude and duration of national shutdowns, the speed at which significant fiscal and monetary policy support takes effect, etc. However, with all uncertainties considered the OECD forecasts a decline in annual GDP growth of up to 2 percentage points for each month that strict containment measures continue.
If the shutdown continued for three months, with no offsetting factors, annual GDP growth could be between 4-6 percentage points lower than it otherwise might have been.
According to a note posted on the IMF Blog on March 30, the drop in annual GDP may reach up to 3 percent each month of the shutdown, ending up in even deeper recession then the one forecasted in the above OECD analysis.
The McKinsey also investigated how the interplay between the virus and society’s response might unfold in terms of possible duration, setting up two scenarios, in their note published on March 16.
In the first scenario, the pandemic peaks in mid-April in the US and Europe, while Asian countries peak earlier. By mid-May, public sentiment is significantly more optimistic about the epidemic. While the autumn of 2020 sees a resurgence of infections, better preparedness enables continued economic activity. Consumer and business spending falls until the end of Q2, and the self-reinforcing dynamics of a recession kick in and prolong the slump until the end of Q3. It takes until Q4 for European and US economies to see a genuine recovery. Global GDP in 2020 falls slightly.
In the second scenario, the epidemic does not peak in the Americas and Europe until May. Africa, Oceania, and some Asian countries also experience widespread epidemics. Consumers cut spending throughout the year. The financial system suffers significant distress, but a full-scale banking crisis is averted because of banks’ strong capitalization and the macroprudential supervision now in place.
The global economic impact is severe, approaching the global financial crisis of 2008–09. GDP contracts significantly in most major economies in 2020, and recovery begins only in Q2 2021.
Poor expectations for Hungary
On March 31, the Porftolio published an article based on the analysis of Erste Bank, suggesting that Hungary may expect 4.2% fallback in 2020, followed by further – 4.6% in 2021. Although for the moment this forecast counts as especially pessismistic, we may experience that most of the analysits see the near future in a more and more negative way.