McKinsey & Co. reveals forecasts for coronavirus impact on global economy

McKinsey & Co. reveals forecasts for coronavirus impact on global economy

BAKU, Azerbaijan, March 25

By Leman Zeynalova – Trend:

McKinsey & Company with headquarters in the US highlights three possible scenarios for the impact of coronavirus on the global economy, Trend reports citing the company.

"In our analysis, three broad economic scenarios might unfold: a quick recovery, a global slowdown, and a pandemic-driven recession. Here, we outline all three. We believe that the prevalent pessimistic narrative (which both markets and policy makers seem to favor as they respond to the virus) underweights the possibility of a more optimistic outcome to COVID-19 evolution," said the company.

Quick recovery

In this scenario, our model developed in partnership with Oxford Economics suggests that global GDP growth for 2020 falls from previous consensus estimates of about 2.5 percent to about 2.0 percent (Exhibit 5). The biggest factors are a fall in China’s GDP from nearly 6 percent growth to about 4.6 percent; a 0.5 percent drop in GDP growth for East Asia; and a 0.3 percent to 0.5 percent drop for other large economies around the world. The US economy recovers by the end of Q1. By that point, China resumes most of its factory output; but consumer confidence there does not fully recover until end Q2. These are estimates, based on a particular scenario. They should not be considered predictions.

Global slowdown

This scenario sees much greater shifts in people’s daily behaviors. This reaction lasts for six to eight weeks in towns and cities with active transmission, and three to four weeks in neighboring towns. The resulting demand shock cuts global GDP growth for 2020 in half, to between 1 percent and 1.5 percent, and pulls the global economy into a slowdown, though not recession.

In this scenario, a global slowdown would affect small and mid-size companies more acutely. Less developed economies would suffer more than advanced economies. And not all sectors are equally affected in this scenario. Service sectors, including aviation, travel, and tourism, are likely to be hardest hit. Airlines have already experienced a steep fall in traffic on their highest-profit international routes (especially in Asia–Pacific). In this scenario, airlines miss out on the summer peak travel season, leading to bankruptcies (FlyBe, the UK regional carrier, is an early example) and consolidation across the sector. A wave of consolidation was already possible in some parts of the industry; COVID-19 would serve as an accelerant.

Pandemic and recession

This scenario is similar to the global slowdown, except it assumes that the virus is not seasonal (unaffected by spring in the northern hemisphere). Case growth continues throughout Q2 and Q3, potentially overwhelming healthcare systems around the world and pushing out a recovery in consumer confidence to Q3 or beyond. This scenario results in a recession, with global growth in 2020 falling to between –1.5 percent and 0.5 percent.

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Follow the author on Twitter:@Lyaman_Zeyn

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