16 April 2020 Ian Stewart, Debapratim De, Maximilien Lambertson, Tom Simmons & Peter Ireson, Economics & Markets Research, Deloitte, London

1. The COVID-19 crisis: Economic impact and policy responses
16th April 2020
Ian Stewart, Debapratim De, Maximilien Lambertson, Tom Simmons & Peter Ireson
Economics & Markets Research, Deloitte, London
Charts as on 26th March 2020

2. 2
US and UK approaching peak, new cases decline in Spain and Italy
New COVID-19 cases appear to have peaked in Italy and Spain in late March, while the UK seems to be approaching it.
Several cities in the US also seem to be nearing a peak. Certain Asian countries, like Singapore and Japan, are now seeing a
rise in new cases, albeit largely imported. We are assessing any evidence of a potential second wave of cases in China or
South Korea, which could inform how far other countries ease restrictions after dealing with their own first waves.
Charts as on 16th April 2020

3. 3
Policy action appears to be easing financial stress
Financial market indicators suggest that interventions by central banks and governments over recent weeks have managed
to reduce volatility. An expectation that many Western countries are near, or already past, their peak in new COVID-19 cases
has also boosted sentiment. The VIX volatility index has fallen from a recent record high to levels below those seen in the
financial crisis. Financial stress seems to be easing but several indicators remain elevated. The default risk of non-investment
grade corporates is down from a recent peak but remains significantly higher than levels seen over the last three years.
Charts as on 16th April 2020

4. 4
Demand shock keeps oil under pressure despite OPEC’s production cuts
Social distancing restrictions imposed across the globe have sharply reduced the demand for oil and other commodities.
Unprecedented coordination between OPEC, Russia and the US to cut global oil production by almost 10% has arrested the
steep decline in oil prices but remains far from counteracting an estimated 30% drop in global oil consumption. Low
commodity prices put pressure on nations particularly reliant on commodity exports to fund their fiscal response to the
COVID-19 crisis. However, for commodity importers and consumers, the drop in prices should have a disinflationary impact,
easing pressure on household and government budgets.
Charts as on 16th April 2020

5. 5
High-frequency data reveal unprecedented squeeze in activity
The US has seen four weeks of record jobless claims, totalling almost 22m. In the UK, claims for Universal Credit are being
made at about three times the pre-crisis rate, with 1.4m new applications since the 16th of March. Manufacturing surveys
also indicate a sharp contraction in activity across the US and Europe last month. The New York Fed’s Weekly Economic
Index suggests that activity in early April was equivalent to almost a 10% annualised contraction in GDP.
Charts as on 16th April 2020
New York Fed Weekly Economic Activity Index

6. 6
Scenario Recovery
GDP,
peak
to
trough
Return to
pre-crisis
peak
Restrictions by economic severity (scale explained
below): 0-10 (April = 9)
Impact*
Apr ‘20 May ‘20 Jun ‘20 Q3 ‘20 Q4 ‘20
Base case
H2 2020
recovery
-14% 7 quarters 9 9 7 7 5 Medium
Downside
Delayed,
restricted,
weak
-20% 12 quarters 9 9 9 9 7 High
Upside
Convincing
mid-year
bounce
-10% 5 quarters 9 7 7 4 3 Low
Deloitte ‘base case’ scenario assumes a deep but short-lived UK downturn
*Damage to the economic capacity and prospective demand: gauged by reference to insolvencies, redundancies, Universal Credit claims, corporate and
household balance sheet effects, financial stress, risk aversion
Our analysis of the initial impact of the COVID-19 crisis yields three plausible scenarios for UK activity, based on assumptions
about the timing and nature of easing of restrictions to movement. Our ‘base case’ assumes easing to begin in June and
amounts to a 14% peak-to-trough contraction in GDP followed by a quick recovery, with output back to its pre-crisis peak in
less than two years.
Deloitte UK economic scenarios: Summary & stylised assumptions

7. 7
Our ‘base case’ implies sharpest fall in UK activity in a century
Deloitte’s base case scenario implies a 14% contraction in UK GDP in the second quarter, the sharpest quarterly fall in a
century, followed by a bounce back of 6% in the third. For 2020 as a whole, the scenario translates into a 6.8% contraction
in GDP, a sharper annual decline than in the Global Financial Crisis, and then a 6.5% rise in output in 2021.
80
85
90
95
100
105
1925 1935 1945 1955 1965 1975 1985 1995 2005 2015
Global Financial Crisis
Early 70s
oil embargo
Great Depression
Deloitte ‘base
case’ scenario
Early 90s
recession
Late 70s/early 80s
recession
Quarterly data not available
Source: Bank of England, ONS and Deloitte calculations.
UK GDP: Depth of downturns and time to recover to previous peak
Quarter preceding a downturn = 100
Charts as on 16th April 2020

8. 8
Policy fine tuning to continue
Policy is being adapted as governments and central banks better understand the scale of the shock to their economies and
identify bottlenecks in relief provision. Policymakers in the UK and the US have acted to improve liquidity provision for small
businesses and the British government has announced new funding for charities. But calls for further tweaks to relief
packages continue. The US government is being asked to increase funding for small businesses and raise food-stamp
benefits for low-earners, and, in Italy, there is mounting concern over the plight of workers in its sprawling shadow economy.
Charts as on 16th April 2020

9. 9
Where to look for green shoots?
Among Asian economies, China offers some further signs of a pickup in activity. Chinese manufacturing activity rebounded in
March, albeit from February’s historic low. Bank lending figures also hit a record high in March. In Europe and the US, we
continue to assess the spread of the epidemic. As of 16th April, new cases appear to have peaked in Italy and Spain, with
both nations, along with Austria and Denmark, also easing some lockdown restrictions.
Source: European Centre for Disease Prevention and Control
Charts as on 16th April 2020

10. This publication has been written in general terms and we recommend that you obtain professional advice before acting or refraining from action on any of the
contents of this publication. Deloitte LLP accepts no liability for any loss occasioned to any person acting or refraining from action as a result of any material in
this publication.
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Contacts
Data for all the charts in this document was sourced from Refinitiv Datastream unless otherwise stated. Charts
as on 16th April 2020.
Ian Stewart
Partner & Chief
Economist
020 7007 9386
istewart@deloitte.co.uk
Debapratim De
Senior Economist
020 7303 0888
dde@deloitte.co.uk
Tom Simmons
Economic Analyst
020 7303 7370
tsimmons@deloitte.co.uk
Peter Ireson
Economic Analyst
011 7984 1727
pireson@deloitte.co.uk
Maximilien Lambertson
Economic Analyst
020 7303 5316
mlambertson@deloitte.co.uk
Charts as on 26th March 2020