Exiting the lockdowns to jump on the coveted rebound

Exiting the lockdowns to jump on the coveted rebound

Numbers do not lie. 2020 will enter the textbooks due to the size of the global downturn. The spread of the coronavirus across countries has prompted many governments to introduce lockdown measures to contain the epidemic. This includes travel restrictions and businesses being forced to shut down, unfolding into financial market turmoil, the erosion of confidence and heightened uncertainty.

This has caused the worst mix possible: global negative supply shock (less production) coupled with a global negative demand shock (less investment and consumption), especially in the first quarter of 2020. According to the most recent forecast by the International Monetary Fund (released in April 2020), this is why the economic effects of the COVID-19 pandemic will be more severe than the 2008-2009 financial crisis. Notwithstanding the gradual release of the lockdowns starting from the second quarter of 2020, the IMF has forecasted a -3% for the global economy in 2020. In 2019 we had a +2.9%.

At national level, the size of the negative economic effect is the result of the stringency and length of the lockdown measures and a degree of economic integration of the country with other countries affected by Covid-19. The higher the international exposure of a country, the worse it’s probable economic effect. This is generally the case of countries whose goods and services (such as education and tourism) sold abroad represent a relatively high share of their GDP. As stated by the Governor of the Reserve Bank of NZ, Adrian Orr, “even if New Zealand successfully contains the spread of disease locally, reduced world activity will mean lower demand for many of New Zealand’s exports.”

For the Italian and New Zealand economies, the IMF has forecasted, respectively a -9.13% and a -7.21% in 2020 (see figure below). The drop in Covid-19 cases has led the two countries to loosen the national lockdowns in May to let the economy restart in different phases according to a decreasing level of essentiality. Moreover, the two economies have been supported by governments’ policies that will mainly translate into additional public debt.

Numbers do not lie. 2020 will enter the textbooks due to the size of the global downturn. The spread of the coronavirus across countries has prompted many governments to introduce lockdown measures to contain the epidemic. This includes travel restrictions and businesses being forced to shut down, unfolding into financial market turmoil, the erosion of confidence and heightened uncertainty.

This has caused the worst mix possible: global negative supply shock (less production) coupled with a global negative demand shock (less investment and consumption), especially in the first quarter of 2020. According to the most recent forecast by the International Monetary Fund (released in April 2020), this is why the economic effects of the COVID-19 pandemic will be more severe than the 2008-2009 financial crisis. Notwithstanding the gradual release of the lockdowns starting from the second quarter of 2020, the IMF has forecasted a -3% for the global economy in 2020. In 2019 we had a +2.9%.

At national level, the size of the negative economic effect is the result of the stringency and length of the lockdown measures and a degree of economic integration of the country with other countries affected by Covid-19. The higher the international exposure of a country, the worse it’s probable economic effect. This is generally the case of countries whose goods and services (such as education and tourism) sold abroad represent a relatively high share of their GDP. As stated by the Governor of the Reserve Bank of NZ, Adrian Orr, “even if New Zealand successfully contains the spread of disease locally, reduced world activity will mean lower demand for many of New Zealand’s exports.”

For the Italian and New Zealand economies, the IMF has forecasted, respectively a -9.13% and a -7.21% in 2020 (see figure below). The drop in Covid-19 cases has led the two countries to loosen the national lockdowns in May to let the economy restart in different phases according to a decreasing level of essentiality. Moreover, the two economies have been supported by governments’ policies that will mainly translate into additional public debt.