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The Economic Outlook report published a couple of weeks ago predicts very poor prospects for most economies and businesses over the next two years.
It presents two possible scenarios: one where the virus continues to recede and remains under control, and one where a second wave of rapid contagion erupts later in 2020.
A single-hit scenario:
The current containment measures are assumed to successfully overcome the current outbreak, with the effective reproduction rate declining and staying persistently below unity. Higher hospital capacity and the widespread roll-out of effective testing, tracking and treating are assumed to be sufficient to prevent a resurgence in infections and intensive cases later in the year and until a vaccine becomes available.
A double-hit scenario:
The current easing of containment measures is assumed to be followed by a second, but less intensive, virus outbreak taking place in October/November. This could be because of seasonal factors in some countries, particularly in the Northern Hemisphere, or because containment, test, tracing and isolating is not as efficient as expected. It could also reflect insufficiently high cumulative infection rates to generate adequate herd immunity, a lack of suitable treatment measures and the unavailability of a vaccine. Further outbreaks in 2021 are assumed to be avoided due to pharmaceutical breakthroughs, but these remain a significant downside risk.
Which is more likely – a double or a single?
The following chart, from the Financial Times, shows that in many countries COVID-19 infections are still in the first rapid growth phase and not even close to receding.
In the case of the USA the number of confirmed cases reached 30,000 in March and then fell to just under 20,000. In the last two weeks, however, it has moved back to over 27,000 and is expected to move higher still as the consequences of easing lockdowns feed through.
The UK has managed to get its daily new cases down to 1,200. But that is merely the officially confirmed cases. The reality is that at least three times that number each day in our society catch the disease and potentially pass it on (the average pass on rate is a little below one person passes on to one person).
And we hear this morning that Boris Johnson will overrule scientists and open up the economy including 1 metre distancing, opening pubs etc., which means many people will barely social distance (daily new cases in other countries relaxing lockdown: France 483, Germany 575, Italy 204, Spain 573).
The greater risk of a resurgence in the UK means I will pay more attention to the OECD’s second wave scenario in what follows.
OECD main findings
“By the end of 2021, the loss of income [globally] exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments.”
The consequences of one-seventh of the normal output of UK goods and services not appearing this year are bad enough to bear, but the even worse news is that we don’t get all of that level of activity back for a very long time.
The OECD say:
“The recovery is likely to be hesitant and could be interrupted by another coronavirus outbreak if targeted containment measures, notably test, track and trace (TTT) programmes, are not put in place or p
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