ING Bank Predicts Four Scenarios for Global Economy After COVID

Dutch multinational bank "ING" has predicted a set of scenarios that would face the global economy following the outbreak of the novel coronavirus (COVID-19).

The First Scenario (Base case)

The first scenario assumes that social tensions and serious economic repercussions will push the major governments to start easing the lockdown procedures at the end of this April, and others will follow in May, with a gradual return to normalcy, with the social distancing continuing throughout the entire summer period at least.

This scenario also assumes that global travel restrictions will continue, yet, with a combination of vaccine development, a more prevalent testing capacity and greater ability to increase critical health care services, a full shutdown can be largely avoided even if the virus spreads again as winter approaches in the north.

Meantime, most countries are expected to experience a sharp decline in economic activity compared to the global financial crisis.

The Second Scenario (Winter lockdowns case)

According to the second scenario, there will be a gradual easing of the lockdown procedures in the next two months, however, if the virus returns in the fall, and despite more widespread testing efforts and tracking of citizens who were in direct contact with confirmed cases, the new outbreak will pushing most economies to shutdown.

However, crisis management in governments will be more experienced than in the spring of 2020, and containment measures can be more detailed, allowing some regions and sectors to continue operating rather than adopting a complete shutdown.

This is supposed to continue until April 2021 before the virus becomes under control and economies begin to return to normal.

The Third Scenario (Best Case)

The third scenario is that the western world will follow in the footsteps of China by ending closures once the new casualty curve is reversed. This scenario assumes a rapid return to normal at the end of April.

It is also assumed that the virus will not return next winter, however, some economic losses will not be immediately compensated but, government measures such as financial easing, cutting key interest rates, providing more liquidity and subsidies through cash handout initiatives as well as hours-of-work cut plans will foster a rapid and robust recovery of the economy, despite some differences across countries depending on when the shutdown will end.

In this scenario, most economies will experience a moderate stagnation of around 2-3% on an annual basis, yet, growth in 2021 will accelerate, returning most economies to pre-crisis levels.

The Fourth Scenario (Worse Case)

The fourth scenario assumes that things will return to normal during the second quarter of 2021, perhaps if a vaccine is developed and distributed during the winter months. Recovery here may be slightly faster and stronger than other scenarios, as it is assumed that the virus will be fully under control.

In this scenario, most economies will witness an unprecedented decline in the second quarter of this year, by about 50% on a quarterly basis. This year will be mentioned in history books as the year of the worst recession, with most economies witnessing a double-digit decline for the year as a whole.

The recovery in 2021 will be relatively weak and will take until 2023 before most economies return to pre-crisis levels.

Based on all the scenario, the decline of the US  real Gross Domestic Product (GDP) is expected to settle between -3.6% to -14.9% at the end of the FY 2020.

In addition, the eurozone growth is also expected to record a -3.2% to -16.1 % decline in GDP growth. Moreover, the UK like other developed economies is expected to witness a decline of -3.1% in the best case scenario to -13.1% in the best case by the end of this fiscal year. The bank also expects Japan to witness a harsh drop in growth between -0.6% to -14% during FY 2020.

Meantime, ING predicts a slight growth for the Chinese economy, at 0.4% to 4.5% on an average basis during the current year, after the Asian tiger managed to tackle the deadly pandemic.

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