Four Scenarios For The Global Economy After Covid-19 By ING's Carsten Brzeski And James Smith
ING Authors Carsten Brzeski and James Smith map out the hit to the global economy and possible path for recovery under four different coronavirus scenarios
While quarantining and social distancing is the right prescription to combat COVID-19’s public health impact, the exact contrary is needed when it comes to securing the global economy. Economic contagion is now spreading as fast as the disease itself. As more countries impose quarantines and social distancing, the fear of infection and income losses is increasing uncertainty around the world.
Governments are considering and rolling out large incentive packages to prevent a sharp downturn of their economies which could potentially drop the global economy into a deep recession. Early estimates predicated that, should the virus become a global pandemic, most major economies will lose at least 2.4 percent of the value their gross domestic product (GDP) over 2020, leading economists to already reduce their 2020 forecasts of global economic growth down from around 3.0 percent to 2.4 percent. In the worst-case scenario, the world economy could contract by 0.9 per cent in 2020.
The 4 Economic Scenarios out of Covid 19
The scenarios below that the interplay between the virus and society’s response might reveal and the implications on the economy in each case. At ING, they have developed four scenarios of how the virus, the lockdown measures and consequently the different economies could progress. Unnecessary to say, even these scenarios cannot try to fully predict reality, but we hope they can provide a benchmark for both the extremes and the middle-ground. In each case, we have laid out some possible health factors that may be driving the scenarios although we would highlight these are not meant to be interpreted as forecasts.
Scenario 1: Base case
In this scenario, the experts have discussed the base case of COVID-19 and the main purpose of this scenario for the major economies as well as their latest monthly updates. Growing limitations on the movement of people and lockdowns in Europe and North America are hitting the service sector hard, particularly industries that involve physical interactions such as retail trade, leisure and hospitality, recreation and transportation services. Collectively, they account for more than a quarter of all jobs in these economies. As businesses lose revenue, unemployment is likely to increase abruptly, transforming a supply-side shock to a wider demand-side shock for the economy.
The adverse effects of extended restrictions on economic activities in developed economies will soon spill over to developing countries via trade and investment channels. The COVID-19 pandemic will not only defeat economic growth, it will also badly impact sustainable development in the short run.
In Africa, an outbreak of the virus is of extreme concern because of the fragility of countries’ healthcare systems and because many of these economies already face significant public health challenges, particularly malaria, measles, HIV, and tuberculosis. During the 2014–16 Ebola outbreak, many of the deaths were due to resources being diverted away from other diseases.
In Western Asia, the pandemic is likely to impact humanitarian action of the international community in Iraq, Syria and Yemen, where ongoing conflict still requires timely responses. The return to normality is gradual, and social distancing continues for at least the entire summer. As a result, Economic recovery will be U-shaped but still most countries will experience a more severe contraction of economic activity than during the financial crisis.
Scenario one at a glance