Coronavirus impact monitor - 23 March 2020 - Deloitte Economics Greenland edition
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Coronavirus impact monitor – 23 March 2020 Deloitte Economics Greenland edition
Real economic impact
Local government introduce aid package to help the Greenlandic economy through the
COVID-19 health crisis
• Between 20 January 2020 and 19 March 2020, the number of global confirmed COVID-19 cases has risen from seven to about 208k. In Greenland, the
number of confirmed cases has increased from two on March 18 2020 to four on March 22 2020 and remains at four on March 23 2020.
• However, the health crisis has pushed the global and Greenlandic economies into unchartered territory. The government is signalling that it is doing
whatever it takes to prevent a situation where the capacity of the healthcare system is breached. This includes extraordinary measures, and like many
other countries Greenland – especially in Nuuk - is de facto closed down.
• Right now, the challenge is not so much that consumers are unwilling to spend money: In many cases, consumers are unable to spend money. Figures
from Denmark, for instance, show that spending at restaurants and on transportation is down by some 60%. Grocery spending, in contrast, is up by
some 75%, likely reflecting stock building (see charts below).
• To help the Greenlandic economy through the crisis the Government of Greenland has introduced an aid package including: Postponement of tax
payments, compensation to employee retention, compensation for reduced turnover and state-guaranteed loans.
Dramatic changes in consumer spending patterns in Denmark
Restaurant spending index Grocery spending index Transportation spending index
(100 = same weekday in 2019)
(100 = same weekday in 2019)
(100 = same weekday in 2019)
120 200 120
100 100
150
80 80
Index
Index
Index
60 100 60
40 40
50
20 20
0 0 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Date March 2020 Date March 2020 Date March 2020
Note: Based on transactions with cards and MobilePay, Danske Bank has compiled detailed consumer spending data
Sources: Danske Bank, Deloitte analysis
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 affected by the spread of the virus and
100
on January 2, 2020
related travel bans. The EURO STOXX Transport index
has been down by some 49% since the end of January 90
2020, driven by a material decline in volumes. 80
• The European energy sector, including oil and gas 70
companies, has lost some 56% since the end of 60
January 2020. Declining energy prices have applied 50
downward 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 25-03-2020
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. However, due to market sell-off 0.0
and lack of liquidity, rising interest rates are now seen -0.1
in many markets. -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 25-03-2020
10Y DKK Swap rates 6M CIBOR
Note: 1) All indices are on a European basis: EURO STOXX Transport, Energy, Pharmaceutical, Financials and Technology index
Sources: Thomson Reuters Eikon, European Union
Coronavirus impact monitor – March 2020 Page 3 Deloitte Economics © 2020Economic Outlook: Deloitte survey
Severe slowdown of the world economy throughout 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%
• According to the OECD, the global economy in 2020 is expected to grow by 2.4% instead of the 2.9%
initially estimated 2.9%, while European growth slows down from 1.1% to 0.8%. 2.4%
• In Denmark, bank estimates from Nordea Markets project a decrease in economic growth rates from
1.5% to 1.0% or even 0.5% in the worst-case scenario. 1.5%
1.1% 1.2%
1.0%
• Nevertheless, projections for 2021 for global and European economic growth by the OECD remain optimistic 0.8%
and are subject to an upward adjustment to 3.3% and 1.2%, respectively, in response to the slowdown in
2020. However, please note that OECD has not updated its projections since our last report as of 13 March n/a
World Europe Denmark
• However, within the last week, expectations for the timing of recovery of the world economy post COVID-19
have decreased significantly. For instance, responses from nearly 2,000 participants in a Global Deloitte 2020 forecast pre COVID-19
Economics webinar with colleagues and clients on 19 March 2020 show that about 40% expect the activity to Revised 2020 forecast post COVID-19
rebound not until 2021 and beyond. Last week, this was only the expectations among 23% of the participants Revised 2021 forecast post COVID-19
(n=3,000).
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?
3.5%
Q2 2020
1.5%
Possibly severe but 77.5% 46.1%
Yes
short-lived slowdown 57.7% 37.7% 38.6%
Q3 2020
29.9%
22.5% 53.9% 34.6%
Protracted and Q4 2020
No 28.4%
severe downturn 42.3% 62.3%
Q1 2021 23.3%
and beyond 40.3%
Survey results on March 12, 2020 Survey results on March 19, 2020
1) Deloitte surveys conducted on 12 and 19 March 2020, involving about 3,000 colleagues and clients from all over the world
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 4 Deloitte Economics © 2020Impact of COVID-19 in Greenland
COVID-19 has caused a lock-down in Greenland as well, impacting several sectors (1/2)
• As per 22 March 2020, there has been four cases of COVID-19 confirmed in Risk profiles of major Activity Work Delivery
Greenland and Nuuk has been locked down to contain the contagion and to sectors and activities level force of goods
shield the already limited healthcare sector in Greenland.
Trawlers at sea
• Some of the major sectors in Greenland are set to experience decreased
revenue. The primary sources of risk are 1) decreased activity level due to
Fishery
Near shore fishing
forced lock-down, 2) ability to get the necessary work force to Greenland
and 3) delivery of goods. Research for minerals could be set back due to Industrial buyers/factories
situation on the financial markets.
• As per 20 March 2020, all passenger transport by air and sea in and out of Farming/agriculture
Greenland, as well as domestically, has been suspended until April 3 rd 2020.
Goods transportation by air and sea will continue to ensure supplies, along Mining activities
material
with transportation, which is critical to society. It is estimated that flight
Ice/water
Raw
departures will decrease 75% as a consequence of the lock-down1.
• Fishery is the largest and most important sector in Greenland. Although Exploration activities
transportation of goods in Europe is still open, demand for especially
shrimps might decrease for a longer period due to the global crisis. The Site operators/facilities
industrial buyers and factories might be forced to close down impacting the
activity negatively and staffing onboard the trawlers at sea may become Aviation / Airports
problematic as the work force cannot travel to Greenland.
Hotels
Leisure
• The raw material sector in Greenland is impacted as the exploration
activities could decrease as a consequence of lower investment levels within Restaurants and café´s
the sector. The sector is furthermore impacted as foreign specialists and
employees are unable to travel to Greenland decreasing the mineral and Tours and tourists events
metal mines activities as well as the exploration activities.
Bus/taxies (road/water)
• Specifically, the ban on gathering and travel will impact the leisure sector.
The high season has not yet started in Greenland. However, if the Groceries (food and non-food)
conditions persist over the summer, the sector will be significantly impacted
due to lower activity. The sector has already been forced to close as a Clothes, fashion and self-care
Retail
consequence of the lock-down.
Long-term consumer goods
• The retail industry is impacted by the lock-down in term of the physical
stores being forced to close. The grocery stores, including food and non- Personal transport vehicles
food products, will remain open.
Notes: 1) Deloitte analysis
Coronavirus impact monitor – March 2020 Page 5 Deloitte Economics © 2020Impact of COVID-19 in Greenland
COVID-19 has caused a lock-down in Greenland as well, impacting several sectors (2/2)
• The telco industry is not expected to be significantly impacted other than Risk profiles of major Activity Work Delivery
operators and consultants with the industry being unable to facilitate sectors and activities level force of goods
meetings in person.
Tele infrastructure
• The construction industry is primarily threatened in terms of replacement of
Telco
the work force as the construction workers cannot travel to Greenland. It is Operators / consultants
uncertain if the hardware stores will remain open.
• The liberal industry includes financial organisations, advisers and personal Developers / platforms
care facilities. The financial organisations and advisors are not expected to
Architects / Engineers
Construction
be impacted significantly except for the inability to facilitate meetings in
person. The personal care facilities as e.g. hairdressers are impacted as
Entrepreneurs
these are forced to close due to the lock-down.
• The entertainment industry, including among others theatres, music Building material providers
performances and fitness centres are significantly impacted as the lock-
down has forced these to close as well. Facility and security services
• The city development project as well as other commercial development Financial organisations
industry
Liberal
projects might be impacted due to higher level of uncertainty causing
investors to hesitate directly impacting the external financing opportunities. Advisers
• All sectors faces the risk of a slowdown due to lack of employees if the Personal care providers
breakout spreads
• Technical areas faces the risk of a machinery breakdown, which can´t be Theatres, festival and culture
Entertain-
repaired due to lack of spareparts and specialist to repair them.
Music and performances
ment
• Many sectors faces a risk due to chain-reactions. If i.e. fishing factories are
locked down, there will be no places to sell the fish for near coast vessels Fitness and sport facilities
Sport event organisers
Note; the analysis are not to be considered a complete list – and the risk
profile can change rapidly due to changes in the covid-19 situation.
Notes: 1) Deloitte analysis
Coronavirus impact monitor – March 2020 Page 6 Deloitte Economics © 2020Key messages
The global economic slowdown is set to hit the Greenlandic economy, but public support
and alignment with the private sector will ease the long-lasting impact
• Between 20 January 2020 and 19 March 2020, the number of global confirmed COVID-19 cases has risen from seven to about 208k. In Greenland, the
number of confirmed cases is four on March 23 2020 (from March 18 to March 22 the number remained at two).
• COVID-19 has caused severe damage 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. Supply chain disruptions and negative demand shocks have spread from China to the rest of the
world.
• In Greenland, especially leisure, including aviation, hotels and restaurants, and the entertainment industry have already suffered major losses due to
the lock-down of the economy. But also the raw material industry experiences negative consequences in terms of lower investment levels and lack of
competences as foreign specialist can’t enter the country. The greenlandic economic council has indicated, that the economic growth in Greenland must
be expected to be less than the estimated 3,9 percent, which where the expectations from February 2020.
• According to a Global Deloitte Economics survey among 2,000 colleagues and clients from all over the world on 19 March 2020, expectations are that
the economic slowdown will be deep and last throughout 2020.
• However, governments all over the world, including Greenland, are introducing major aid packages to help companies and employees through the
health crisis. This may ease the severe and long-lasting impact of COVID-19 on the world economy.
• 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 Bo Colbe Rikke Beckmann Danielsen
Director, Head of Deloitte Economics Partner Partner
Mobile: +45 30 93 54 71 Mobile: +299 56 27 70 Mobile: +45 30 93 56 92
maskov@deloitte.dk bcolbe@deloitte.dk rdanielsen@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
Impact on financial markets
Equity market volatility at highest level since the global financial crisis
VSTOXX Index
• The VSTOXX index measures 30-day implied volatility of
100
the EURO STOXX 50 equity index and reflects investors'
90
uncertainty abut future equity market moves.
80
• As shown in the graph above, the Coronavirus induced
Volatility index
70
an increase in volatility to a level comparable to that Coronavirus induces
60 volatility increase
experienced during the global financial crisis in 2008,
50 comparable to GFC
underlining investors’ fear of a recession.
40
30
20
10
0
Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018 Jan 2020
iTtraxx Europe Crossover Index: Default probability
• The chart opposite shows the development in the %
implied default probabilities based on the 5Y iTraxx 70
European Crossover spread of Credit Default Swaps and 61.7%
60
an assumed recovery rate of 40%. It measures default
Default probability in %
probabilities on a portfolio of sub-investment grade 50
43.2%
corporate debt in Europe.
40
• With a current default probability of about 43%, we are
30
on the highest level since the European debt crisis, but
still below peak financial crisis levels. 20
• As the index reflects cost of debt, any refinancing will 10
be costly for leveraged companies, even though interest
rates are close to record low. 0
Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018 Jan 2020
Note: 1) VSTOXX as volatility index of EURO STOXX 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 © 2020This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms or their related entities (collectively, the “Deloitte organization”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No representations, warranties or undertakings (express or implied) are given as to the accuracy or completeness of the information in this communication, and none of DTTL, its member firms, related entities, employees or agents shall be liable or responsible for any loss or damage whatsoever arising directly or indirectly in connection with any person relying on this communication. DTTL and each of its member firms, and their related entities, are legally separate and independent entities. About 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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