COVID-19: The Economic Scenario

Release date: 04-2020Author: Market Statsville Group

Uncertainty doesn't have to mean paralysis.

COVID-19 created an economic imbalance and made vast uncertainty for business operations. Moreover, in this COVID-19, the only reality of the market is that it is uncertain, and anytime it can bounce back with a higher growth rate. No economist can predict when this crisis will take over and further the instant health crisis's practical effect and subsequent economic dislocation.

Although economic uncertainty doesn't count or lead to financial paralysis, it would mean opportunity by applying reasonable and credible estimates to follow the recovery path and timing to take future strategic decisions. At Market Statsville Group (MSG), we prepare statistically and impact analysis models to estimate the loss and design of the best recovery scenarios for the companies in the global market. We are also working on a range of ideas about how the economic impact of this COVID-19 crisis may evolve during the short to medium-term.

Clearing the Basics

Many assumptions trigger any economic model, but the key ones which reinforce our estimations and thinking are –

1. the supply side primarily impacts COVID-19. Our central case scenario is based on the expectant assumptions that most of the COVID-19 crisis peaks for most of the countries and territories in Q2 2020, and further estimated that the global economy instigates to recover from Q3 2020 onwards. Besides, the downside scenario assumes the virus's effect may re-emerge in most countries as a second wave, and those countries and territories are essential to adopt partial lockdown safety measures again in the domestic market.

2.    There is a prediction that the demand uncertainty may lie for a longer-lasting, and the productivity can bounce back up to an extent as safety rules lift. Still, nobody follows force consumption in the market. So it is hard to know when and how rapidly will cause economic activity and employment to rebound? In attempting to answer these hard financial questions, the countries and territories' macrostructure should be considered, such as what parts of GDP get hit the hardest, how government policies impact the structure, and what the recovery profiles act like in the market?

3.    As per the World Bank, more economies are expected to be in recession and face a massive loss in 2020 than in recorded 2008. It is also essential to see how governments and central bank authorities are willing to respond in the current pandemic and post-pandemic scenarios? 

The Economic Outlook

First, it is necessary to understand the actual impact of the COVID-19 crisis on the business and individual products/services. Moreover, it is vital to answer the following questions: Is it time to change your product listing, or is it time to expand or go for partnership opportunities to minimize the local house and business listing. According to the IMF's latest forecast predicted a contraction of 4.9% in the global GDP in 2020, with a 5.4% rebound in 2021. (1) In comparison, the World Bank most recently forecast a contraction of 5.2% (2) in the global GDP in 2020, increasing by 4.2% in 2021. 

Although the economies avoid a further major outbreak and consider the Organisation for Economic Co-operation and Development (OECD) June Economic Outlook (3), it seems less optimistic in both of their prediction situations. They estimated that the world economic output plummets 7.6% this year before climbing back 2.8% in 2021, followed by a second wave of COVID-19 infections hits before year-end. Besides, if we avoided a second wave of COVID-19 infections, world economic activity may fall to 6% in 2020, and OECD unemployment climbed to 9.2% from 5.4% in 2019. In short, these estimations seem to vary significantly.

Our holistic view is partially more optimistic and genuine that the economies will witness a shallower drop than many of these forecasts. It is expected that the economies may hit bottom with a 7.9% decline in the global GDP in the second quarter of 2020, with an estimated quick 7.5% rebound in next Q3 and 2.8% in Q4; this signifies a drop of about 4.1% globally in 2020, before rebounding again by 6.6% in 2021. This is mainly due to a comparatively much more robust outlook for China and dependable rebounds in Eastern Europe, Latin America, and the remainder of East Asia by Q3 2020.

Still, there is a big question about global economies how bad could it get?

There might be a more substantial than an anticipated hit to the global economic growth in Q2 2020, with an 8.2% decline, with a limited 5.9% uplift in Q3 2020 and 2.8% in Q4 2020, with most countries and territories may see double-digit hits in Q2 2020. However, some countries and territories may witness another decline in quarter-on-quarter GDP growth due to the second wave of the virus hitting or not recovering from the first wave in the second half (2H) 2020 or 1H 2021. Furthermore, it is expected that the global may resist this 'W' recovery and may decline more sharply by 7.9% in 2020 and improve by 4.6% in 2021 than 3.0% in 2022.

When MSG talks and states 'recover' and 'rebound' words, it does not necessarily mean pre-pandemic levels; it could take until the 2H of 2021 to return to Q4 2019 levels. Our consultant predicted that some countries and territories might witness worse effects from the pandemic than others. Potential double-digit hits to annual GDP growth with recoveries to Q4 2019 levels are not expected before 2024 or later.

What makes us think differently from the other global predictors?

MSG's macroeconomic consultants are working closing with the authorities and company officials to identify the risks and opportunities on how the health crisis is likely to be managed going forward, along with how the health vs. political economics equation will be responded in significant markets and how long lockdown mandatory restrictions will continue.

Although the global economic future is the most uncertain prospect, integrating in-depth political and economic scenarios into your investment frameworks and financial models with the proper business planning and risk management processes will help identify and prioritize any company or business's critical opportunities and risks. 

Feel free to contact (mail to sales@marketstatsville.com) with our macroeconomic consultants and professional researchers for your specific market needs and information.

Annotations

https://www.imf.org/en/Publications/WEO
https://www.worldbank.org/en/news/feature/2020/06/08/the-global-economic-outlook-during-the-covid-19-pandemic-a-changed-world
http://www.oecd.org/economic-outlook/june-2020/