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COVID-19 Update: Few, if any, countries or industries will be immune to economic impact

11 March 2020 Chris Williamson Elisabeth WaelbroeckRocha, Ph.D. Ken Wattret Nariman Behravesh, Ph.D.

The global spread of the COVID-19 epidemic is the single biggest risk facing the world economy in early 2020. IHS Markit has been producing and will continue to produce a series of briefings that cover the impacts of the epidemic on the outlook for various countries and industries.

COVID-19 Recovery will be U-shaped

  • IHS Markit estimates that global growth in 2020 will be 1.7%, compared with 2.5% in our February baseline, and 2.7% in 2021 compared with the earlier forecast of 2.8%.
  • While the US economy will be hurt by the effects of the virus, we believe that the momentum of the economy is strong enough to avoid a recession. On a calendar-year basis, we are now predicting 1.8% growth in both 2020 and 2021, compared with the previous forecast of 2.1% in 2020 and 2.0% in 2021.
  • Europe is likely to be harder hit, with Germany and Italy in or near recession before the epidemic. This could well drag the rest of the eurozone into recession. For 2020, the IHS Markit eurozone forecast has been cut from 0.9% to 0.0%, while the 2021 growth rate has been reduced from 1.1% to 0.9%.
  • The epidemic could not have come at a worse time for Japan, which suffered a fourth quarter contraction of 6.3%, annualized. For the moment, we are assuming that that the summer Olympics in Tokyo will proceed as planned. Even with that, real GDP will shrink by 0.3% in 2020, compared with our February forecast of positive 0.2% growth. For 2021 we expect growth of 0.9%, compared with last month's estimate of 1.0%.
  • In China, the rapid spread of the virus over the past two months and the aggressive quarantine policies of the central government mean that there was likely a sharp contraction in real GDP in the first quarter of this year, which will be followed by a modest recovery in the second. With this, we now predict growth of only 4.3% this year, compared with 5.4% a month ago, and 6.4% in 2021, compared with the prior forecast of 6.0%.
  • The impact on the rest of the emerging world will vary with the incidence of the epidemic (e.g. Iran will get hit very hard) and the transmission mechanism through lower global growth and lower commodity prices. Few, if any, countries will be immune.

Industry impacts

  • In 2020, the motor vehicles & parts industry will be hit most severely, down 4.4%* globally, followed by computer & electronics (-1.9%* globally) and restaurants (-1.3%* globally). The light vehicles sales market will be down 5.1% globally (number of units).

    *Loss in value added linked to the Coronavirus pandemic (percent deviation from the February 2020 forecast)
  • The motor vehicles & parts industry will contract in most regions in 2020 - with the biggest declines seen in Japan, China, South Korea and the United States.
  • Transportation services will contract in Italy (-0.7%) and Japan (-0.4%) in 2020.
  • The restaurant and recreation sector will also fall in 2020, down 1.5% in Japan, 1.2% in South Korea and 2.4% in Italy, respectively.
  • By 2021, all industry segments will see a return to growth. Regionally, Japan, the Euro area and Latin America show weakest growth across a range of industries.

ECB: Additional stimulus on the way, but how much and how soon?

  • IHS Markit expects the ECB to announce yet another package of easing measures on 12 March.
  • This is likely to include an enhancement of liquidity provision, a 10-bp deposit facility rate (DFR) cut, and a modest increase in the monthly pace of net asset purchases (probably EUR10-20 billion).
  • We see a risk, however, that the ECB might fall short (temporarily), disappointing market expectations.
  • Either way, even a wide-ranging package of measures will make little difference to the near-term fall-out on the economy from the spread of the COVID-19 virus. At best, it will mitigate some of the financial market spillover effects.
  • Italy, which is effectively already in recession, will bear the brunt of the damage in the near-term. But the multiple transmission channels of this shock suggest the eurozone overall is likely to follow into recession in coming quarters.
  • Given this backdrop, we doubt that the pressure on the ECB to ease further will diminish quickly even if a range of measures is announced shortly.

PMI surveys: Global economy contracted at the steepest rate since 2009

The coronavirus disrupted supply chains and hit sectors such as travel, tourism and transport. The downturn was led by China, with deep downturns also seen in Hong Kong SAR, Japan and the US.

The percentage of respondents who cited COVID-19 as a negative factor was most highly concentrated in the hard-hit Asia Pacific region. By comparison, a relatively lower percentage of UK and US firms referenced the virus in negative sentiment comments in February, but those numbers are expected to rise in the March surveys.

February data signaled widespread disruption across sectors stemming from the coronavirus outbreak. Eight sectors posted the fastest falls in output on record during the month, since the global sector data were first compiled in October 2009. In contrast, the pharmaceuticals & biotechnology sector saw growth in activity in February, posting the fastest expansion since December 2018.

Posted 11 March 2020 by Chris Williamson, Chief Business Economist, IHS Markit and

Ken Wattret, Vice President, Economics, IHS Markit and

Nariman Behravesh, Ph.D., Senior Economic Adviser, IHS Markit


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