The coronavirus has sent the world economy into its deepest recession since the Great Depression. However, we continue to think it will be relatively short-lived, seeing a rebound on the cards in late Q2/early Q3 as economies open up.
High-frequency data support the view that the advanced economies are recovering, as the virus comes under control and economies start to reopen.
Based on better news on treatment and the positive experiences in Denmark and Norway, as well as significant policy support, we have increased the probability of the positive scenario playing out to 15% from 10% and lowered the probability of the downside scenario to 35% from 40%.
Key downside risks include a new wave of infections and economy-wide lockdowns in advanced economies, a related emerging market crisis, escalation of tensions between the US and China resulting in the cancellation of the phase-1 trade agreement, a no deal Brexit and a surge in bankruptcies and unemployment.
Among key upside risks are finding a vaccine this year and a faster rebound in economic activity when economies are opened up.