Real Asset Insight #6 June 2020

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Europe braces for
post-pandemic fallout
As lockdown eases across Europe, economists, politicians and investors are trying
to gauge and quantify the extent of the economic damage caused by Covid-19.
By James Wallace
European governments are beginning
to ease lockdown restrictions which
will support economies during the
second half of Q2 as they try to regain some
normalisation of life.
These moves will not change the fact that
the current quarter will still be the worst for
the eurozone by a country mile, according
to Jessica Hinds, an economics analyst at
research consultant Capital Economics.
‘A renewed rise in the infection rate could
prompt the reimposition of lockdowns.
But it provides a glimmer of hope that our
forecast of a 20% quarter-on-quarter slump
in GDP in Q2 will prove too pessimistic.’
Overall, the economic outlook will remain
intrinsically linked to the development,
scaled production and worldwide
distribution of a safe and effective vaccine
for Covid-19. Beyond this, there are
wide variations in the predicted future
performance of economies.
At the macro level, the important questions
are focused on when the recovery begins
and the strength of post-crisis economic
activity. The answer will vary widely
between nations and will be dependent on
the interrelated scale of the public health
crisis caused by Covid-19, the severity and
duration of the societal lockdown, and the
pace of reopening. Those nations which
suffered the greatest health crisis will also
endure a more severe economic downturn.
The key data to focus on is growth and
earnings from Q4 onwards. At a global level,
the International Monetary Fund says the
world will need $20trn in public investment
on healthcare infrastructure and green
energy. Since its mid-April forecast which
projected a 3% contraction in 2020, the
global economic outlook has continued
to worsen, the IMF said in mid-May. Until
the health crisis is solved, the economic
consequences will remain.
In Europe, the lifting of lockdown and the
unburdening of debt have morphed into the
12 Real Asset Insight | Issue 12 March July 2020