Danske Research Team
Danske Bank A/S
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.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
EUR/USD trades with negative bias, holds above 1.0700 as traders await US PCE Price Index
EUR/USD edges lower during the Asian session on Friday and moves away from a two-week high, around the 1.0740 area touched the previous day. Spot prices trade around the 1.0725-1.0720 region and remain at the mercy of the US Dollar price dynamics ahead of the crucial US data.
USD/JPY jumps above 156.00 on BoJ's steady policy
USD/JPY has come under intense buying pressure, surging past 156.00 after the Bank of Japan kept the key rate unchanged but tweaked its policy statement. The BoJ maintained its fiscal year 2024 and 2025 core inflation forecasts, disappointing the Japanese Yen buyers.
Gold price flatlines as traders look to US PCE Price Index for some meaningful impetus
Gold price lacks any firm intraday direction and is influenced by a combination of diverging forces. The weaker US GDP print and a rise in US inflation benefit the metal amid subdued USD demand. Hawkish Fed expectations cap the upside as traders await the release of the US PCE Price Index.
Sei Price Prediction: SEI is in the zone of interest after a 10% leap
Sei price has been in recovery mode for almost ten days now, following a fall of almost 65% beginning in mid-March. While the SEI bulls continue to show strength, the uptrend could prove premature as massive bearish sentiment hovers above the altcoin’s price.
US economy: Slower growth with stronger inflation
The US Dollar strengthened, and stocks fell after statistical data from the US. The focus was on the preliminary estimate of GDP for the first quarter. Annualised quarterly growth came in at just 1.6%, down from the 2.5% and 3.4% previously forecast.