The coronavirus has sent the world economy into its deepest recession since the Great Depression. However, we continue to think it will be relatively short-lived, seeing a rebound on the cards in late Q2/early Q3 as economies open up.

High-frequency data support the view that the advanced economies are recovering, as the virus comes under control and economies start to reopen.

Based on better news on treatment and the positive experiences in Denmark and Norway, as well as significant policy support, we have increased the probability of the positive scenario playing out to 15% from 10% and lowered the probability of the downside scenario to 35% from 40%.

Key downside risks include a new wave of infections and economy-wide lockdowns in advanced economies, a related emerging market crisis, escalation of tensions between the US and China resulting in the cancellation of the phase-1 trade agreement, a no deal Brexit and a surge in bankruptcies and unemployment.

Among key upside risks are finding a vaccine this year and a faster rebound in economic activity when economies are opened up.

 

Reopening of economies on track so far

In our global forecast update on 16 March we assumed a peak in COVID-19 infections in Europe and US in late March and early April, respectively, and that this would pave the way for a gradual reopening in the second half of April and early May. The development since then has pretty much unfolded as expected. While the decline in US daily cases has not come down as much as we expected (although much more testing blurs the picture), the individual US states have decided to go ahead with the reopening anyway. It is positive that so far we have not seen an increase in the number of infections in the US and Europe, despite the reopening of many countries.

The virus's development in Emerging Markets/developing countries has been significantly worse than we had assumed. Many countries have seen a continued strong increase in new infections, not least India and Brazil. Even so, many governments have chosen to reopen their economies as the cost of the lockdowns has been severe and had a big human cost as well.

The gradual reopening across Europe and the US is happening at different speeds, but most of the countries are on track for reducing around 80-90% of the lockdown measures by the end of June. This is broadly in line with our expectations from March. It is difficult to measure how strict the lockdowns have been, but Oxford University has attempted to measure this across countries with its Stringency Index, see chart overleaf.

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