Coronavirus impact monitor - 16 March 2020 - Deloitte Economics
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Coronavirus impact monitor – 16 March 2020 Deloitte Economics
Corona virus outbreak
More rapid transmission development compared with the SARS outbreak in 2003
Confirmed COVID-19 cases: World and Denmark
• Between January 20, 2020 and today, March 16, 2020,
the number of global confirmed COVID-19 cases rose 180,000 164,837 1,400
from 7 to approx. 165k.
# confirmed cases Denmark
160,000
# confirmed cases globally
1,200
140,000
• Within Denmark the number of confirmed cases rose 1,000
120,000 864
rapidly within the past two weeks from only 8 on
100,000 800
March 4, 2020 to 864 on March 16, 2020.
80,000 600
As of
• This development of global cases is approx. 20 times 60,000 March 16, 2020
400
as large as the amount of confirmed cases in the SARS 40,000
epidemic of 2003 within the first 77 days. 20,000
200
• According to Danish Health Authorities, the COVID-19 0 0
01-01-2020 15-01-2020 29-01-2020 12-02-2020 26-02-2020 11-03-2020 25-03-2020 08-04-2020
spreads more rapidly than the seasonal flu (2.3 vs 1.3
cases per infected person) and has a longer incubation
Denmark (RHS) World (RHS)
period compared to the seasonal flu (approx. 14 days
vs. 4 days).
Coronavirus and SARS outbreak: World
• Based on current numbers of fatalities to confirmed
cases, COVID-19 spreads more rapidly but is not as 180,000 164,837 40,000
# confirmed cases COVID-19
fatal as SARS (4% vs. 10% fatality rate of confirmed 160,000 35,000
# confirmed cases SARS
Approx. 20x larger
cases). 140,000 than SARS within 30,000
120,000 first 77 Days
25,000
100,000
20,000
80,000
15,000
60,000
8,460
40,000 10,000
20,000 5,000
0 0
01-12-2019 01-01-2020 01-02-2020 01-03-2020 01-04-2020
SARS COVID-19
Notes: 1) Day 1 for SARS is March 27, 2003; Day 1 for Coronavirus December 31, 2019; Day 73 for Coronavirus is March 12, 2020
Sources: Number of infected people taken from WHO
Coronavirus impact monitor – March 2020 Page 2 Deloitte Economics © 2020Impact on financial markets
European equity markets suffering major losses from the outbreak of COVID-19
Equity markets: Sectoral indices in Europe
• European equity indices have suffered material losses
following the COVID-19 outbreak in Europe. Major outbreak in Europe
• Especially the transport industry, including airlines,
Sectoral indices indexed to 100
110
was severely impacted by the spread of the virus and
100
on January 2, 2020
related travel bans. The Eurostoxx Transport index is
down some 40% since end of January, driven by a 90
material decline in volumes. 80
• The European energy sector, including oil and gas 70
companies, has lost some 45% since end of January. 60
Declining energy prices have applied downward 50
pressure on energy equities.
40
• Financials, including banks, have also experienced 01-01-2020 15-01-2020 29-01-2020 12-02-2020 26-02-2020 11-03-2020
value destruction. Market concerns about increased Transport Energy Pharmaceuticals Financial Technology
credit losses and funding squeeze are likely drivers.
Interest rates: 10Y Interest rate (swap) and 6M interest
• Other industries such as Pharmaceuticals and rates (CIBOR)
Technology have held up relatively well as the sectors 0.4
are less exposed to a near-term contraction in 0.3
consumer spending. 0.2
• The outlook of slower economic growth translates into 0.1
% rates
lower interest rates. Central banks across the world 0.0
have eased monetary policies, applying downward -0.1
pressure on interest rates. -0.2
• Equity market volatility has spiked to levels not -0.3
experienced since the global financial crisis (see -0.4
Appendix). 01-01-2020 15-01-2020 29-01-2020 12-02-2020 26-02-2020 11-03-2020
10Y DKK Swap rates 6M CIBOR
Notes: 1) All indices are on a European basis: Eurostoxx Transport, Energy, Pharmaceutical, Financials and Technology index
Sources: Thomson Reuters Eikon, European Union
Coronavirus impact monitor – March 2020 Page 3 Deloitte Economics © 2020Real economic impact
Global supply chain disruption and negative demand shock to impact the economy
• In a short period of time, the COVID-19 crisis has progressed from a China event into a global supply chain disruption (negative exogenous supply
chain shock) and a negative demand shock with complex feedback loops. Companies and factories are reducing activity levels or closing down, feeding
a disruption to global supply chains. People are asked to stay at home or work from home, sharply reducing personal consumption (for instance, limited
travel and limited activity at restaurants).
• The policy response in Denmark has been material, with a countrywide lockdown for two weeks, and closure of all human traffic across borders.
• Central banks across the world have eased monetary policies and introduced various measures to ease market strains and prevent funding and liquidity
squeezes.
• The scale and magnitude of the pending economic slowdown remains unclear.
Chain of real economic impact
Feedback loops
Financial,
Global supply Integrated
China-centric Global funding & Stability &
chain Government
slowdown demand shock liquidity recovery
disruption policies
squeeze
Processes underway Processes in near future
Notes: 1)
Sources: Deloitte analysis
Coronavirus impact monitor – March 2020 Page 4 Deloitte Economics © 2020Economic Outlook: Deloitte survey
Severe and short-lived slowdown, with expected recovery in second half of 2020
• The disruption of the global supply and demand chain as well as financial markets translates into an Economic growth projections
adjustment of economic growth projections worldwide: 3.3%
2.9%
• According to the OECD global economy in 2020 is expected to grow by 2.4% instead of the initially
2.4%
estimated to 2.9%, while European growth slows down from 1.1% to 0.8%
• In Denmark bank estimates from Nordea Markets project a decrease of economic growth rates from 1.5%
1.5% to 1.0% or even 0.5% in the worst-case scenario 1.1% 1.2%
1.0%
0.8%
• Nevertheless, projections for 2021 for global and European economic growth by the OECD remain optimistic
and are subject to an upward adjustment to 3.3% and 1.2% respectively in response to the slowdown in 2020 n/a
• Response from almost 3,000 participants on a Global Deloitte Economics call with colleagues and clients on World Europe Denmark
March 12 shows that almost 80% believe the Coronavirus will have a severe, but only short-term impact.
2020 forecast pre COVID-19
Accordingly, approx. 70% of respondents expect the economy to rebound in Q2 or Q3 of 2020 - even though
Revised 2020 forecast post COVID-19
more than half of the respondents is not convinced that policymakers have enough tools to attenuate the Revised 2021 forecast post COVID-19
shock induced by Coronavirus.
Results of Deloitte surveys
Do policymakers have sufficient
What will be the ultimate impact on When do you think activity will
policy tools to cushion the economy
economic growth of COVID-19? rebound in your economy?
from the COVID-19 shock?
Q2 2020 3.5%
Possibly severe but
77.5% Yes 46.1%
short-lived slowdown Q3 2020 38.6%
Q4 2020 34.6%
Protracted and
22.5% No 53.9%
severe downturn
Q1 2021
23.3%
and beyond
1) Deloitte surveys conducted on March 12, 2020 involving 3000 colleagues and clients
Deloitte surveys, OECD Economic outlook (November 2019) and Coronavirus update (March 2020) for global and EU figures; Nordea markets estimates for Denmark
Coronavirus impact monitor – March 2020 Page 5 Deloitte Economics © 2020Coronavirus heatmap
Deloitte Economic’s view on the short-term outlook across selected sectors in Denmark
Transport
• High short-term impact of COVID-19 on transportation due
to limitations on travel and supply chain disruptions. Lower Denmark
volumes are reported in bus transportation, shipping and air
transport. Passenger volume through Copenhagen Airport Sector
are down some 30%. Short-term Outlook
Hotels and restaurants
• It is estimated that turnover among hotels is down some Transport High impact Slow recovery
50-60%. Restaurants and bars are also reporting major
declines in activity.
Hotels and
Financials High impact Moderate recovery
restaurants
• Equity prices of Danish banks have fallen sharply, partly due
to concerns about credit losses: The corporate sector in
Denmark is relatively skewed towards small and medium-
sized companies, that appear more vulnerable to supply Financials High impact Moderate recovery
chain disruptions and negative demand shocks.
Pharmaceuticals
• Limited impact so far. Potential upside in scenario with Pharmaceuticals Neutral / Low impact Growth opportunity
increased spending on vaccinations.
Leisure
Leisure High impact Moderate recovery
• The advice by Danish authorities to refrain from gathering
more than 100 people under one roof is a major issue for
the leisure sector (conference centers, concert places etc.)
Notes: 1)
Sources: Deloitte analysis, Dansk Erhverv
Coronavirus impact monitor – March 2020 Page 6 Deloitte Economics © 2020Key messages
The global economic slowdown is set to hit the Danish economy
• COVID-19 spreads more rapidly, but is less fatal than for instance SARS (3.6% vs. 10% fatality
rate of confirmed cases). COVID-19 also spreads more rapidly than the seasonal flu (2.3 vs 1.3
cases per infected person). From March 4 to March 13 the number of confirmed cases increased by
almost 800% (from 8 to 801).
• COVID-19 has caused severe damages on the World Economy. The equity markets have suffered
major losses and equity market volatility has spiked to levels not experienced since the global
financial crisis.
• In Denmark, especially the transport sector and hotels and restaurants have experienced a major
decrease in turnover. As the Danish government enforces extraordinaire measures to prevent
COVID-19 to spread in the population, the severe economic consequences of COVID-19 is
expected to characterise the economic situation across sectors.
• According to a Global Deloitte Economics survey among 3,000 colleagues and clients from all over
the world the expectations are that the economic slow-down will be deep, but short. By the end of
2020 the economy is back on track.
• Deloitte Economics will continue monitoring the impact of the Coronavirus in Denmark and
globally.
For questions on the contents of this report, please contact:
Majbritt Skov Tinus Bang Christensen Peter Lildholdt
Director, Head of Deloitte Economics Partner Assistant Director
Mobile: +45 30 93 54 71 Mobile: +45 30 93 44 63 Mobile: +45 40 35 25 36
maskov@deloitte.dk tbchristensen@deloitte.dk plildholdt@deloitte.dk
Disclaimer: The information in this document is intended for knowledge sharing only.
Coronavirus impact monitor – March 2020 Page 7 Deloitte Economics © 2020Appendix Coronavirus impact monitor – March 2020 Page 8 Deloitte Economics © 2020
Appendix – Impact on financial markets
Equity market volatility at highest level since financial crisis
VSTOXX Index
• VSTOXX describing the European volatility benchmark 100
reflecting investors sentiment and overall economic
90
uncertainty by measuring 30-day implied volatility of
80
Euro Stoxx 50.
Volatility index
70 Coronavirus induces
• As shown in the graph above the Coronavirus induced larger volatility increase
60
an increase in volatility to the highest level since the than during GFC
50
Great Financial Crisis in 2008 underlining investors’ fear
40
of a recession.
30
• Up to today the volatility index rose by approx. 520%
20
this year, largely exceeding growth rates during the
10
GFC.
0
Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018 Jan 2020
Itraxx Europe Crossover Index: Default probability
• The adjacent chart shows the development of the %
implied default probabilities calculated based on the 5Y 70
Itraxx European Crossover spread of Credit Default 61.7%
60
Swaps and an assumed recovery rate of 40%.
Default probability in %
50
• With a current default probability of approx. 40% we
40.2%
are on the highest level since the European debt crisis, 40
but still below peak financial crisis levels.
30
• As the index reflects cost of debt and because
refinancing will be costly for levered companies, even 20
though interest rates are at an all-time low, returning to 10
long-term levels of default probabilities is expected to
be a protracted process. 0
Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018 Jan 2020
Notes: 1) VSTOXX as volatility index of Eurostoxx 2) Default probability calculated based on 5Y Itraxx European Crossover CDS and a recovery rate of 40%
Sources: Thomson Reuters Eikon
Coronavirus impact monitor – March 2020 Page 9 Deloitte Economics © 2020About Deloitte Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. Our global network of member firms and related entities in more than 150 countries and territories (collectively, the “Deloitte organization”) serves four out of five Fortune Global 500® companies. Learn how Deloitte’s approximately 312,000 people make an impact that matters at www.deloitte.com. Deloitte Touche Tohmatsu Limited Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please seewww.deloitte.com/about to learn more. © 2020 Deloitte Statsautoriseret Revisionspartnerselskab. Member of Deloitte Touche Tohmatsu Limited.
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