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COVID-19 Economic Dashboard

Economic Comment

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  • In this dashboard we provide an up-to-date overview of the implications of the COVID-19 spread for economies around the globe
  • Although the number of new confirmed cases has been declining in China, the outbreak is far from over as the epicentre has shifted to Europe and more recently the US
  • While most countries initially hoped that the impact would be limited to less trade with China, most countries are now experiencing negative effects on their domestic economies after imposing strict containment measures
  • Timely economic indicators allow us to grasp the early adverse effects on, for example, the tourism, hospitality and transportation sector
  • But with the drastic measures currently in place, no economic sector is likely to emerge unscathed
  • Sentiment indicators point to a severe contraction of gross domestic product around the world
  • Equity markets reacted immediately to the uncertainty stemming from COVID-19 as was evidenced by stock market indexes plunging and volatility increasing. Depreciation of EM currencies and rising peripheral spreads could prove destabilizing

Introduction

Given that economic data (such as GDP) becomes available at quite some lag, we construct a COVID-19 dashboard which provides us some early insights into the economic impact of the virus outbreak. We do this by making use of economic indicators available at a high frequency, survey evidence and financial market data. As things evolve, this dashboard helps in tracking the economic impact. For a more elaborate economic analysis, we have conducted a scenario study.

COVID-19

While COVID-19 initially started as a local outbreak in East-Asia, it has now developed into a pandemic. Although the number of cases has more or less stabilized in China, COVID-19 has far from run its course as is evidenced by Europe and the US now being its next epicentre (Figure 1). Throughout the West, a substantial amount of new cases are being reported every day and public life has ground to a halt. Whether the lockdown measures are enough to get the outbreak under control remains to be seen as containment efforts need time to bear fruit.

Figure 1: Number of confirmed COVID-19 cases
Figure 1: Number of confirmed COVID-19 cases Source: World Health Organisation (WHO)
Figure 2: United States currently tops list of most new cases per day
Figure 2: United States currently tops list of most new cases per daySource: WHO

Please note that the numbers presented in Figure 4 are highly dependent on the number of people tested per country, the strictness of the measures imposed, population density and several other factors. For example, Germany conducts around 300.000 tests per week, more than some European countries have carried out in total during the first few weeks of the crisis.

Figure 3: Deaths per country
Figure 3: Deaths per countrySource: ECPC
Figure 4: Infections per million of population
Figure 4: Infections per million of populationSource: WHO

Policy responses

Several countries in the West have implemented drastic measures to curb the further spread of the COVID-19. Since these drastic measures virtually paralyze economic activity, governments and central banks have announced fiscal and monetary policies to dampen the effect of the containment measures.

Containment measures

Table 1: Containment measures in the Eurozone and the United States
Table 1: Containment measures in the Eurozone and the United StatesNote: Most Eurozone countries ban flights from China, Iran, South-Korea and Italy.
Some also from Spain. * Closed except for citizens, cross-border workers and freight.
Source: National government statements and websites, interpretation RaboResearch

Fiscal measures

Additionally, there have been numerous fiscal measures to support ailing business, the self-employed and employees who have been (partly) laid off because of the virus. Especially the United States have announced a large package of fiscal stimulus, both in absolute terms as in relative (to GDP) terms.

Table 2: Fiscal measures
Table 2: Fiscal measuresNote: *UK support package is an estimate. The total value of the package depends on the length of the crisis.
** Liquidity measures are part (and not on top) of the total value of the USD 2310bn package.
Source: National governments
Figure 5: Policy rates
Figure 5: Policy ratesSource: National central banks

Central banks have taken a slew of measures to alleviate liquidity and funding issues in markets, to prevent interest rates from rising sharply and to support government bond issuance.

Most central banks have cut interest rates, have announced liquidity support measures and re-established or introduced large scale asset purchase programs. On top of that we have seen regulatory forbearance in a number of jurisdictions.

Economic indicators

In this section, we present a range of (timely) economic indicators that help us form a first impression of the potential magnitude of the economic effects caused by the COVID-19 outbreak. We have categorized the charts per region: China, Europe, the Netherlands and the United States.

Analysis of timely economic indicators also allows us to spot the first signs of a future rebound in economic activity. For example, starting April 8th, the Wuhan region, the place where it all started, is officially no longer under lockdown. When the time comes, we hope to gauge the pace of economic recovery that is taking place in China by taking a good look at the timely indicators.

We proceed by presenting the first hard data releases. Moreover, we plot historical relationships between timelier survey data and hard data that is released at a substantial lag, such as the national accounts.

Global

Figure 6: Flights are cancelled globally
Figure 6: Flights are cancelled globallySource: Flightradar24
Figure 7: Restaurant bookings have collapsed
Figure 7: Restaurant bookings have collapsedSource: OpenTable

China

Since the virus originated in China, they should be at least one to two months ahead of the curve in terms of economic impact. Therefore, the use of some already available hard data – whilst acknowledging large structural differences between economies - may help us gauge the impact that the virus may have on Western economies, both domestically and via trade related channels.

Figure 8: Activity in Shanghai port decreased drastically
Figure 8: Activity in Shanghai port decreased drasticallySource: Shanghai Municipal Statistics Bureau
Figure 9: Passenger transport has collapsed in China
Figure 9: Passenger transport has collapsed in ChinaSource: China National Bureau of Statistics
Figure 10: Automotive sector is in for a treat (2m smooth y/y)
Figure 10: Automotive sector is in for a treat (2m smooth y/y)Source: ECB, China Passenger Car Association, BEA
Figure 11: Manufacturing has plummeted in China
Figure 11: Manufacturing has plummeted in ChinaSource: Destatis, NBS, Istat
Figure 12: First hard data releases China
Figure 12: First hard data releases ChinaSource: : NBS
Figure 13: Change in the Chinese and American unemployment rate is a bad omen for Europe
Figure 13: Change in the Chinese and American unemployment rate is a bad omen for EuropeSource: Eurostat, BLS, NBS

The economic activity in China does not only act as a proxy of how things could evolve in the domestic part of other economies. We also expect to see effects from the Chinese slowdown via a number of trade-related channels. Below we have created a heatmap for the dependence of European economies on China. Needless to say, Germany is very exposed to China through trade.

Table 3: From the big Eurozone members, Germany is most exposed to China
Figure 14: From the big Eurozone members, Germany is most exposed to ChinaSource: Macrobond, RaboResearch

Europe

Sentiment indicators on sector level in the Eurozone confirm that agents across all sectors are currently far less optimistic. Given the severity of the measures currently in place in most Western economies, it is hard to see any economic sector escaping the negative economic impact of the virus outbreak. The latest release of the Purchasing Managers Index (PMI) suggest output will contract sharply during the first quarter of 2020.

European finance ministers managed to overcome their indifferences and present a EUR 500bn package announced on Thursday April 9th. This package should provide (cheap) liquidity to member states that have been hit hard by the crisis. Nations can apply for funds through SURE (Support to mitigate Unemployment Risks in an Emergency), the European Investment Bank or through the European Stability Mechanism. Contrary to previously approved credit lines from the ESM, new credit lines only bear the conditionality that funds have to be spend on projects directly or indirectly related to the healthcrisis.

Figure 14: Textiles trade in Germany is declining rapidly
Figure 14: Textiles trade in Germany is declining rapidlySource: TextilWirtschaft
Figure 15: Lower peak hour electricity consumption amid lower business activity
Figure 15: Lower peak hour electricity consumption amid lower business activityNote: Peak hour electricity consumption (8 am – 6 pm) is calculated as the 5-day moving average: weekends excluded. Source: Entsoe
Figure 16: Industry in France & Italy takes a blow in March
Figure 16: Industry in France & Italy takes a blow in MarchSource: Italian Confindustria, Banque de France
Figure 17: French retail trade plunges by unprecendented 23% in March
Figure 17: French retail trade plunges by unprecendented 23% in MarchSource: Banque de France
Figure 18: German sentiment indicates contraction
Figure 18: German sentiment indicates contractionSource: Markit, Destatis
Figure 19: A large contraction is on its way for France
Figure 19: A large contraction is on its way for FranceSource: Markit, Eurostat
Figure 20: Italian sentiment points to severe contraction of output
Figure 20: Italian sentiment points to severe contraction of outputSource: Eurostat
Figure 21: Spaniards are still relatively upbeat in March
Figure 21: Spaniards are still relatively upbeat in MarchSource: Eurostat
Figure 22: Eurozone sentiment & GDP
Figure 22: Eurozone sentiment & GDPSource: Eurostat, Markit
Figure 23: Consumer confidence in the Eurozone
Figure 23: Consumer confidence in the EurozoneSource: Eurostat

Structural factors, such as a relatively heavy reliance on temporary contracts and self-employment, may aggravate the negative economic impact for certain countries from the Covid-19 shock. In particular, countries with relatively little fiscal policy space, such as Spain and Italy, may be vulnerable when the lockdown drags on.

Figure 24: Percentage of temporary contracts
Figure 24: Percentage of temporary contractsSource: Eurostat
Figure 25: Italy’s labor force has a large share of self-employed
Figure 25: Italy’s labor force has a large share of self-employedSource: OECD

Netherlands

There have also been a number of drastic measures in the Netherlands. Especially small entrepreneurs, the self-employed and businesses in the travel and hospitality sector have been affected by these measures.

Figure 26: Less cargo is being shipped by air
Figure 26: Less cargo is being shipped by airSource: Royal Schiphol Group
Figure 27: NO emmissions around high ways have dropped (shaded area marks lockdown)
Figure 27: NO emmissions around high ways have dropped (shaded area marks lockdown)Source: Luchtmeetnet.nl
Figure 28: Expected activity indicates a small contraction
Figure 28: Expected activity indicates a small contractionSource: CBS
Figure 29: Consumer confidence indicates a contraction
Figure 29: Consumer confidence indicates a contractionSource: CBS
Figure 30: Production expectations have dropped slightly
Figure 30: Production expectations have dropped slightlySource: CBS
Figure 31: Construction seems to be holding up for now
Figure 31: Construction seems to be holding up for nowSource: Eurostat, CBS

United States

Due to global interconnectedness, it was always an illusion for the United States to think it could escape the virus. We are already observing a vast impact on the labor market, since American employees receive relatively little protection and laying off people can be done with the stroke of a pen. The substantial drop in mortgage applications is another indication that uncertainty is high and that as a result the American economy is slowing.

Figure 32: Weekly retail sales plunge in the US
Figure 32: Weekly retail sales plunge in the USSource: Redbook Research Inc.
Figure 33: Jobless claims have jumped more than 6m two weeks in a row
Figure 33: Jobless claims have jumped more than 6m two weeks in a rowSource: U.S. Department of Labor
Figure 34: Production in American steel factories drops
Figure 34: Production in American steel factories dropsSource: American Iron & Steel Institute
Figure 35: Mortgage applications down substantially
Figure 35: Mortgage applications down substantiallySource: Mortgage Bankers Association
Figure 36: Retail sales and industrial production down in March
Figure 36: Retail sales and industrial production down in MarchSource: US Census Bureau, Federal Reserve
Figure 37: Leading indicator US GDP
Figure 37: Leading indicator US GDPSource: Institute for Supply Management, BEA

Financial markets

Financial markets may serve as useful indicators to gauge where the crisis will hit hard as investors try to anticipate the economic fallout. Due to liquidity concerns and general uncertainty about the magnitude of the crisis, equity markets plunged and are currently very volatile, with the volatility index reaching similar levels as during the Great Financial Crisis.

Financial markets are not all-knowing however. They do not know how long this crisis will last or which companies will handle the crisis best. The impact that the coronacrisis has on financial markets is thus very dependent on sentiment. Consequently, we should not interpret market prices as a perfect indicator of the potential impact, but they should give some guidance towards which sectors and regions are hit hardest.

Figure 38: Equity
Figure 38: EquitySource: Macrobond
Figure 39: VIX
Figure 39: VIXSource: Macrobond

We are seeing two risks in financial markets that could aggravate the current economic slump. First, emerging market companies and governments that are dependent on dollar funding could get into a lot of stress. Emerging market FX have plummeted since the start of the year (figure 41), resulting in exploding foreign debts (denominated in the local currency). Investors are increasingly wary to invest in emerging markets or will demand that loans are denominated in US dollars. A further flight to safe haven currencies will only strengthen this effect.

Second, looking at the Eurozone, a further rise in peripheral spreads (figure 42) could endanger the debt sustainability of some countries. If peripheral spreads in the Eurozone become too large, the ECB could interfere, as they did on March 19 by announcing an expansion of the Asset Purchase Program by EUR 750bn. These interventions are controversial however and could lead to political unrest.

Figure 40: FX vs USD
Figure 40: FX vs USDSource: Macrobond
Figure 41: Peripheral spreads
Figure 41: Peripheral spreadsSource: Macrobond
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