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COVID-19: Economic-Brief 31 July Business in strict confidence COVID-19: Economic Brief Assessing implications for economies, sectors and markets 31 July 2020 Grant Colquhoun, Marie-Louise Deshaires and Roxane Osuna Business in strict confidence Developments and implications summary – 31 July Overview New case numbers in India are continuing to accelerate and those in Brazil have leapt again. While the number of daily infections in the United States has levelled out in recent days, they remain at a high level. In some regions of Spain, the number of new daily cases has exceeded previous peaks seen in late March. Sectors China is on track to return to its pre-crisis growth path before year-end. Although state-directed investment has driven the recovery so far, tightening capacity utilisation suggests manufacturing will grow again before year-end. ​ The rise in durable goods orders in the United States in June left core orders only slightly below February levels, underlining how the hit to business investment during the pandemic has been relatively mild. Markets The recovery in emerging market capital flows stalled last month, but this is only a minor setback. The key near-term risk is a re-imposition of national lockdowns in major global economies. Average energy prices will be markedly lower this year than last owing to sluggish demand (after the slump in the first half of 2020) and high stocks. Forecasts Hard data for May and June were generally stronger than we had anticipated, and we have revised up many of our 2020 gross domestic product forecasts accordingly. From here, the recovery will be uneven, with Emerging Markets outside East Asia generally faring worse than advanced economies. China, Korea and Taiwan are among the furthest along the road to recovery and we expect them to stay in the lead, while economies in southern Europe, Latin America and Africa will lag. After shrinking by 4.5 per cent this year, we forecast the world economy to be over three per cent smaller than it would have been without the virus by the end of 2022, with developed markets generally getting closer to pre-virus trends than emerging markets. 2 Business in strict confidence Latest new cases and containment policy developments New cases per Trend in Latest virus containment policy developments million people* new cases Asia On Thursday, authorities imposed travel restrictions on people coming in and out of Urumqi (the capital of China’s China 0.1 western Xinjiang region) as the city accounted for 96 of the 105 new cases in China. Improving / Less Korea 0.7 No new policy developments. restrictive Japan 6.6 No new policy developments. Singapore 77.4 No new policy developments. The Delhi High Court extended the suspension of the functioning of High Court and subordinate courts until the 14 India 36.0 August. Europe Germany 6.7 Germany advised people against non-essential travel to the three worst affected regions of Spain. France 21.8 On Monday, France made it mandatory to wear face masks in indoor public places and shops. Italy 3.4 No new policy developments. No new policy developments, though multiple countries have imposed travel restrictions on people returning from Spain 87.6 Spain. Poland 11.3 No new policy developments. Worsening / United Kingdom 10.1 The United Kingdom imposed a 14-day quarantine for travellers returning from Spain. More restrictive Americas Travel Restrictions at the United States’ land borders (Canada and Mexico) were extended until August 20 this United States 258.5 week. Mexico 45.4 No policy developments. Brazil extended its ban on visitors arriving by land or sea for another 30 days. However, Brazil has opened its Brazil 157.6 borders to foreigners arriving by air after a four-month lockdown. Sources: Capital Economics and various Note: *Change in confirmed cases per million people, seven day average. 3 Business in strict confidence Aggregate measure of the stringency of containment policies in place Stringency index of selected Asian countries, from 0=less Stringency index of selected European countries, from 0=less stringent to 100=most stringent, points stringent to 100=most stringent, points Germany France Italy Spain China Korea Japan Singapore India 100 100 80 80 60 60 40 40 20 20 0 0 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Stringency index of selected American countries, from 0=less Stringency index of selected European countries, from 0=less stringent to 100=most stringent, points stringent to 100=most stringent, points United States Canada Mexico Brazil Poland United Kingdom Russia Sweden 100 100 80 80 60 60 40 40 20 20 0 0 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Sources: Capital Economics and Oxford University. 4 Business in strict confidence Global outlook uncertain as economies diverge and number of cases rise in some areas Many economies still struggling to contain the virus Daily reported change in confirmed cases of coronavirus, selected countries, seven day moving average, thousands Although this week marked marks six months since Covid-19 was declared a public health emergency of international concern, the USA Other developed markets spread of the virus has yet to be brought under control. The number China Other large EM* of Covid-19 new infections globally continues to pick up, averaging 140 Other emerging markets over 256,000 per day this week, 30,000 more than the week prior. 120 New case numbers in India are continuing to accelerate and those in 100 *Brazil, Mexico, Russia, South Brazil have leapt again. While the number of daily infections in the Africa and India United States have levelled out recently, they remain at a high level. 80 60 Meanwhile, Africa is nearing the one million mark, with the 40 majority of cases concentrated in South Africa. Rising Covid-19 cases in other Emerging Markets like Thailand and Colombia have 20 prompted policymakers to tighten restrictions, weighing on activity. 0 It’s feasible there will be a broader pattern of escalating virus cases, 02-Feb 27-Feb 23-Mar 17-Apr 12-May 06-Jun 01-Jul 26-Jul localised lockdowns and short-term economic damage in the coming months. Even if governments were unwilling to tighten Daily reported change in confirmed cases of coronavirus, restrictions in the face of rising caseloads, citizens’ own selected countries, seven day moving average, thousands precautionary behaviour will probably constrain economic activity. Brazil Mexico Russia India South Africa Resurgence of cases in parts of Europe means an uneven recovery 60 New confirmed coronavirus cases in Spain have picked up sharply over the past week or so, averaging close to 2,000 a day. In some 50 regions in Spain, the number of new daily cases has exceeded the 40 previous peak in late March. 30 A combination of official travel restrictions and caution from 20 holidaymakers is likely to hit the economies of Spain, Greece and Portugal particularly hard. But if virus cases rise later in the year, 10 the reduction in tourism will hurt a different group of countries to 0 those which have suffered over the summer. For example, tourism 02-Feb 27-Feb 23-Mar 17-Apr 12-May 06-Jun 01-Jul 26-Jul in Austria peaks in summer and again in winter, due to its popularity as a ski resort. Sources: Capital Economics and Refinitiv. Note: Case numbers subject to revision. 5 Business in strict confidence Australian economic recovery to go into reverse but New Zealand’s prospects are promising Diverging virus success results in diverging activity Australia OpenTable restaurant bookings, year-on-year percentage change, seven day moving average A new outbreak in Victoria has caused daily new cases to surge to a record high in Australia. This has caused restrictions on activity to 80 New South Wales Queensland Victoria be tightened and lockdowns to be re-imposed. For instance, the new 60 lockdown in Victoria has caused restaurant sales to dry up in the 40 state. By contrast, New Zealand has maintained its elimination of 20 the virus with new cases remaining very low. Card transactions in New Zealand are now above their pre-virus levels, rebounding 0 faster than time spent at retail stores would indicate. -20 -40 As a result, we expect domestic demand in New Zealand to return to near its pre-virus level over the coming months. In Australia -60 however, we think the fresh outbreak will cause consumption and -80 investment to decline again. We don’t expect domestic demand in -100 Australia to recover to pre-virus levels until the end of 2021. Feb Mar Apr May Jun Jul Apple maps routing requests, 13 Jan = 100 New Zealand card transactions and google mobility, NZ millions and percentage change from 3 January to 6 February baseline 140 Brisbane Melbourne Perth Sydney 9,000 Electronic card transactions (LHS) 40 120 Retail and recreation trend* (RHS) 20 100 0 7,000 80 -20 60 -40 40 5,000 Lockdown -60 20 Reimposed Latest = 21st Jun. -80 0 3,000 -100 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sources: Capital Economics, CEIC, Refinitiv, TableCheck and Apple. 6 Business in strict confidence China’s economy to rebound quickly, but trade tensions may escalate Chinese Covid-19 hit to fully reverse by year-end China consumer activity, share of 2019 levels, per cent China will return to its pre-virus growth path before the end of this 140 year, well before any other major economy.
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