The impact of the coronavirus: global and regional assumptions

The Economist Intelligence Unit's forecasts are built on a series of epidemiological assumptions about the novel coronavirus (Covid-19). Without rapid access to a vaccine, we expect that the disease will eventually infect up to 30% of the world's population; of the symptomatic cases, we assume that around 15% will be severe and up to 1% will prove fatal. Death ratios will depend on a country's ability to detect, track and contain the virus, and the capacity of its national health system. Governments are lifting restrictions on freedom of movement gradually in countries where the number of cases is falling and where there is sufficient spare capacity in the healthcare system. Some countries may be forced to reimpose measures if cases spike again. Based on previous viral outbreaks and the progress made on other coronavirus vaccines (such as that for severe acute respiratory syndrome, or SARS), we expect a vaccine to be available by end-2021.

In economic terms, we forecast that global output will contract by 4.8% year on year in 2020. We believe that trade disruption will remain severe and forecast that global trade will contract by 22.6% this year. We assume that oil prices will decline by more than 37% in 2020, to average US$4o/barrel, before they recover to US$44/b next year. Global GDP will not recover to pre-coronavirus levels before at least 2022; 2020 and 2021 will be lost years for growth. Real GDP will contract in all of the world's regions, but the drop in output will be especially severe in OECD countries (at 6%). All G7 countries and all but two G20 countries (China and Indonesia) will experience a full-year recession in 2020. We believe that the US's output will contract by 4.8% this year and expect China to record real GDP growth of 1.4%. Asian countries will recover the fastest, with some (including India and South Korea) returning to pre-coronavirus levels of GDP in 2021. G7 economies will recover more slowly. Real GDP will be back to 2019 levels in 2022 for Canada, Germany and the US, 2023 for the UK and 2024 for Italy. Most countries have responded with huge fiscal expansion to support businesses and households, raising the risk of sovereign debt crises in the medium term. Central banks have cut interest rates and, more importantly, have stepped up as buyers of last resort for government and corporate debt.

Asia and Australasia will experience a recession in 2020 for the first time since 1998, with regional real GDP forecast to contract by 1.8%. All countries in the region will see their economic performance affected by demand slumps caused by lockdowns within their own borders and those introduced in other countries. Among the region's major economies, Singapore is forecast to experience the steepest economic contraction in 2020, at 6%, followed by Thailand, India and Japan. Some trade-dependent economies, such as South Korea and Taiwan, will evince a degree of economic resilience because their early response to the pandemic allowed them to avoid costly nationwide lockdowns. Parts of Asia are still expected to post GDP growth in 2020, albeit at a much less rapid rate than normal. Vietnam's economy will grow by 3% this year and Indonesia's by 1%, while China's real GDP is forecast to expand by 1.4%, despite a steep economic contraction in January-March. While the pace of recovery will be sequentially weak in Asia in 2021, a low base of comparison will help to ensure that real GDP rebounds to growth of 5.4% that year.

The pandemic itself is at various stages in Asia. The countries that first experienced the virus, predominantly in North-east Asia and Australasia, are on the path towards economic normalisation and have ended lockdown policies. While fresh cases have emerged in such countries, including a recent cluster in China's capital, Beijing, they have been curtailed locally rather than through fresh nationwide restrictions. The picture in South-east Asia is mixed, with some parts of the region exiting lockdowns relatively smoothly from June. However, several countries-notably Indonesia-are loosening restrictions while still struggling to contain the spread of the coronavirus, which points to a worsening health crisis. There is a similar situation in South Asia, where the devastating impact of lockdown measures on informal parts of the economy is encouraging policymakers to loosen constraints on activity even though daily confirmed cases continue to grow rapidly.

By mid-July there had been nearly 3,000 cases of coronavirus and 15 deaths in the Maldives. The government has handled the pandemic with great caution, as the risk of a rapid spread of infection was very high in the archipelago, which teems with foreigners. The country's borders were closed to international tourists between late March and early July, bringing tourism activity to a complete halt. Given the economy's heavy reliance on earnings from that sector, the strict measures, which have undoubtedly helped to prevent a major public health crisis in the country, will result in significant economic disruption. Real GDP will decline sharply in 2020 and the economy will have to face wage cuts and increased unemployment. Fiscal and monetary stimulus by the government and the Maldives Monetary Authority (the central bank) respectively will provide some support, but a deep recession will be inevitable this year.

The global political and geopolitical impact of the crisis will be significant. The pandemic has resulted in an extraordinary expansion of executive power, with limited parliamentary oversight. Elections have been cancelled in some countries. When the pandemic has passed, governments will face intense scrutiny of their response. Failure to address the humanitarian crisis triggered by the coronavirus could further erode trust in national institutions. A severe global economic crisis, followed by large-scale unemployment, could fuel a new wave of popular protests. The crisis may encourage support for the nation state and a backlash against globalisation and open borders. It will also intensify the competition for global leadership between China and the US, and a realignment of geopolitical spheres of influence may ensue in Europe, Africa and other regions.

Economic growth

The tourism sector accounts for almost one-quarter of the country's GDP, making it one of the main drivers of economic growth. China is the largest source of visitors, accounting for almost one-fifth of total tourist arrivals in 2019. The lopsided reliance of the economy on the tourism sector has made it extremely vulnerable during the coronavirus pandemic. The tourism sector will take a major hit in 2020 as government restrictions on foreign arrivals, coupled with widespread wariness about international travel, crimp activity. Although fiscal and monetary stimulus will provide support, it will not be enough to stop the economy from sliding into a deep recession this year. Wage cuts and job losses stemming from the disruption to the economy from quarantine measures will curtail household spending. Consequently, we expect private consumption expenditure to decline by 2%. Overall, real GDP will shrink by 15.2% in 2020. Although the country announced the reopening of its border on July 15th, visitor arrivals will be low as airlines struggle to adjust to the new global conditions and general caution amongst travellers. The extension of quarantine measures in source countries, such as China, will continue to dampen traveller sentiment.

In the following year, in the aftermath of the coronavirus pandemic, global economic conditions will start to improve. The tourism sector will pick up slowly, driving real GDP growth of 8% in 2021.