First the International Monetary Fund: Paul M. Thomsen of the IMF wrote last week that the service sectors closed in Europe and North America generally account for one-third of national output. This loss translates into a 3% drop in GDP per month while these sectors are out of action.
I’m going to make an optimist assumption now. After three months of lockdown all the major economies will be back to normal with everyone who wants to work working again and companies pumping out just as many goods and services in a typical day as they did in 2019.
With this assumption the loss in GDP is of the order of 9% for 2020 as a whole. That is, this year the people of, say, the UK produce 91% of what they produced in 2019.
For this rosy scenario to work out people need to be convinced that the risk to them or a member of their family of dying of Coronavirus is negligible – they won’t catch it on the Underground, nor in the office or pub.
On top of that it assumes that the vast majority of companies survive the crisis period and can quickly get back to full speed and employ as many people as they did before.
But there will be complications
Just to give you one example of the grit likely to be in the machinery after three months of lockdown I could look at shopping centres. Currently the owners of these buildings are, on average, receiving only one-third of the rents they are due; most retailers are simply refusing to hand over the cash.
Many of these landlords have high debts to serve (e.g. Intu has £4.5bn and has already breached covenants with its bankers). Many analysts think vacancy rates in shopping centres and the high street could double to one in five in the coming months even if the government gave the all-clear. There will be many retailers and many property companies going bust. There will be associated employees and former employees exhibiting much more restrained spending patterns post-virus.
Another example: fashion suppliers to the major retailers are receiving letters telling them that spring/summer orders will not be paid for (or that they will extend payment terms). This will destroy firms and factories all the way down the supply chain. Furthermore, many of the retailers will also go bust in the next few months, often affecting a long line of creditors (similar stories are likely in many supply chains, including those for restaurants, pubs, hotels and airlines, each with powerful knock-on effects)
A less optimistic picture
Looking at the epidemiological work and clear absence of proven antivirals and anti-inflammatories, let alone widespread testing or a vaccine, it seems far more likely that the lockdown or at least a squeeze-and-let-go semi-lockdown will still be in place in the autumn.
If 3% of annual GDP is lost for each month of social distancing and governments do not lift restriction for six months we end up with and loss of 18% of GDP in 2020 compared with 2019.
And that is before other disruptions and spillovers to the rest of the economy are taken into account. “A deep recession this year is a foregone conclusion” writes Paul M. Thomsen.
He is backed up by the World Bank: “We expect a major global recession”.
Already one-fifth of all French private sector employees (in 400,000 companies) are seeking temporary unemployment benefit. That is 4 million people.
In the UK one million signed up for Universal Credit last week, during which time 6.6m Americans sought unemployment relief, taking the total number of Americans filing a new claim for unemployment benefits in the two weeks ending March 28 to 10 million (and many states are yet to shutdown; when they do unemployed numbers will rise).
In addition to registered unemployed about half of the UK workforce is on furlough and millions of self-employed are idle.
Organisation for Economic Cooperation and Development, OECD
In country after country spending has been
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