Deloitte Economics' Coronavirus Impact Monitor - "Emerging worries about the risk of an asset price correction"
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Deloitte Economics’ Coronavirus Impact Monitor “Emerging worries about the risk of an asset price correction” 11th edition, 26 June 2020
Coronavirus outbreak
While the virus appears to be broadly under control in Europe, the United States is
experiencing a rapid increase in the number of cases
7-day rolling average new daily confirmed COVID-19 cases
• The number of daily new cases in the world continues to rise
rapidly. This appears to be driven by emerging market World US Denmark
160,000 35,000 350
countries like Brazil and India where the outbreak seems to
# new daily confirmed cases
be accelerating. 140,000 30,000 300
• While the virus appears to be broadly under control in 120,000
25,000 250
Europe, localised outbreaks continue. For instance, Portugal 100,000
20,000 200
recently imposed new restrictions to limit the extent of a new 80,000
wave of infections in the country. 15,000 150
60,000
• In the United States, the number of cases has started to 10,000 100
40,000
increase rapidly again, this time concentrated in the
20,000 5,000 50
southern and western parts of the country as opposed to the
east coast. The number of daily new cases is approaching 0 0 0
30,000. 1 Mar 1 Apr 1 May 1 Jun 1 Jul 1 Mar 1 Apr 1 May 1 Jun 1 Jul 1 Mar 1 Apr 1 May 1 Jun 1 Jul
7-day rolling average daily confirmed COVID-19 deaths
• At global level, daily deaths are increasing again by around World US Denmark
4,500-5,000 daily deaths. 7,000 3,000 16
14
• While the number of daily deaths in the United States has 6,000 2,500
been falling, it remains to be seen whether deaths will pick up 5,000
12
2,000
# new daily deaths
again after the spike in new daily cases given the ~two-week 10
incubation period. 4,000
1,500 8
• The number of daily deaths in Denmark (around one per day) 3,000
6
also points to the virus being under control, as society 1,000
2,000
4
continues to open up.
1,000 500
2
0 0 0
1 Mar 1 Apr 1 May 1 Jun 1 Jul 1 Mar 1 Apr 1 May 1 Jun 1 Jul 1 Mar 1 Apr 1 May 1 Jun 1 Jul
Sources: World Health Organisation (WHO) as of 24 June 2020
Coronavirus Impact Monitor – 26 June 2020 Page 2 Deloitte Economics © 2020
Impact on financial markets
COVID-19 impact on equity markets continues to affect the transport, energy and financial
sectors, while the medical & pharmaceuticals and technology sectors have recovered
Equity markets: Sectoral indices in Europe1
• European equity indices suffered material losses following the
COVID-19 outbreak in Europe, with all sectors having bounced
Major outbreak in Europe
back by various degrees since the bottom reached in mid-March
2020. 110
• The Transport industry, including airlines, was badly affected by 100
(2 Jan 2020 = 100)
Sectoral indices
the virus and the related travel restrictions, and while it has 90
recovered somewhat, the Refinitiv Europe Transport Price Index 80
is still down by some 31% since the beginning of the year.
70
• The European energy sector, including oil and gas companies,
60
has lost more than 35% since the beginning of the year.
50
Declining energy prices have applied downward pressure on
energy equities. After regaining some ground at the beginning 40
30
30 Dec
Dec 13 Jan 27 Jan 10 Feb 24 Feb 9 Mar 23 Mar 6 Apr 20 Apr 4 May 18 May 1 Jun 15 Jun 29 Jun
of June 2020, share prices have fallen back again over the past 2019
couple of weeks. Transport Energy Medical & Pharmaceuticals Financial Technology
• In its June Global Financial Stability Report, IMF takes note of a
Danish interest rates
divergence between the pricing of risk in financial markets and
economic prospects, as investors apparently are betting on 0.4
continued and unprecedented support by central banks. This 0.3
disconnect between markets and the real economy raises the 0.2
risk of another correction in asset prices. 0.1
Rates, %
• Interest rates have risen since their lowest levels at the 0.0
beginning of March 2020 on the news of large fiscal and (0.1)
monetary stimulus packages by governments and central banks (0.2)
around the world. (0.3)
• Equity market volatility and implied default probabilities remain (0.4)
30 Dec 13 Jan 27 Jan 10 Feb 24 Feb 9 Mar 23 Mar 6 Apr 20 Apr 4 May 18 May 1 Jun 15 Jun 29 Jun
elevated, although they have also decreased since their peak. 2019
See page 27 for more details. 10 Year DK swap rate 6 month CIBOR
Note: 1) Refinitiv European sectoral price indices measured by Refinitiv (Thomson Reuters)
Source: Thomson Reuters Eikon
Coronavirus Impact Monitor – 26 June 2020 Page 3 Deloitte Economics © 2020
Effectiveness of government responses
Preliminary observations on effectiveness of governments’ responses to COVID-19
7-day rolling average new cases per capita vs stringency index1
• Governments’ responses to the COVID-19 outbreak have varied across the
Denmark New Zealand
world. Gauging the effectiveness of governments’ responses is a very
~21 28
complex exercise. However, based on simple data measures, we draw up 120
days
100 120
days
100
some preliminary observations below. The observations focus on the direct 90 96 90
100 80
100 80
impact on COVID-19 infection rates and deaths; economic/social costs are
72 70 70
not accounted for. 80 80
60 60
New daily cases per 1m capita and daily deaths per 10m (left axis)
• In Denmark, the government responded quickly in the sense that the 60 57 50 60 50
stringency index peaked within 21 days. The response was not too harsh, 40 40
40 40
Government response stringency index (right axis)
28 30 30
as the stringency measure peaked at a level of 72. The Danish response
20 14 20
appears to be relatively effective, as the number of new daily cases/deaths 20 20
10 3 10
was not particularly high in an international context. 0 0 0 0
1 Jan 1 Feb 1 Mar 1 Apr 1 May 1 Jun 1 Jul 1 Jan 1 Feb 1 Mar 1 Apr 1 May 1 Jun 1 Jul
• New Zealand appears to have had a very fast and extreme response. The
fallout appears very low. Based on these simple measures, the approach US Sweden
120 100 120 109 120
adopted by the New Zealand government appear very effective. ~62 ~65
90 106
100 days 84 100 days 100
• The response by the US government was slower. The number of daily new 96 80
73
cases and daily deaths was higher than that of Denmark and New Zealand. 80
70
80 80
60
• In Sweden, the response was slower and less stringent. The number daily
60 50 60 60
new cases and daily deaths was also higher than that of Denmark and New 40
Zealand. 40 40 46 40
30
20
• From this perspective, the US/Swedish government response to COVID-19 20 20 20
10
appears to have been less effective in dampening the outbreak. It remains
0 0 0 0
an open question, though, as to how effective the Danish/New Zealand/ 1 Jan 1 Feb 1 Mar 1 Apr 1 May 1 Jun 1 Jul 1 Jan 1 Feb 1 Mar 1 Apr 1 May 1 Jun 1 Jul
US/Swedish response was in the light of the associated economic and Daily new cases per 1m capita Daily deaths per 10m capita Stringency index
social consequences. Maximum points on lines shown by markers
Time between first case and maximum stringency index
Note: 1) The index is a composite measure based on nine response indicators, including school closures, workplace closures, and travel bans, rescaled to a value from 0 to 100 (100 = strictest response).
Source: World Health Organisation (WHO), University of Oxford Coronavirus Government Response Tracker, World Bank
Coronavirus Impact Monitor – 26 June 2020 Page 4 Deloitte Economics © 2020Danish consumer confidence and employment
The number of employed people declined by 73 thousand from March to April 2020
Danish consumer confidence and YoY consumer
• The Danish consumer confidence index has improved markedly in June
spending growth
2020, increasing from -8.8 to -3.1. Almost all of the sub-indices, on which 20 8%
the consumer confidence index is based on, improved.
15 6%
Consumer spending, change YoY
•
Consumer confidence, index
The improvement in consumer confidence is an indication that the
10 4%
contraction in the Danish economy appears to be moderating.
5 2%
0 -
-5 (2%)
-10 (4%)
-15 (6%)
-20 (8%)
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Danish consumer spending, change YoY (RHS) Danish consumer confidence
• Danish employment showed that the number of employed people fell by Danish employment and implied employment without
2,900
wage compensation
2.6% from 2.78 million in March 2020 to 2.71 in April 2020.
2,804
• The Danish government introduced a temporary wage compensation 2,800 2,784
Employment (000s)
scheme, whereby the state pays 75% of the employee’s salary (max.
DKK 30,000). 2,710
2,700
• The chart shows that if the people on wage compensation scheme had
been laid off, as opposed to keeping their job, then obviously the
2,600
employment decline would have been much sharper. 2,569
• It remains an open question as to how many of the people, currently on
2,500
the wage compensation scheme, will be laid off when the scheme is Dec 2017 Apr 2018 Aug 2018 Dec 2018 Apr 2019 Aug 2019 Dec 2019 Apr 2020
scheduled to terminate on 29 August 2020.
Danish employment (000s) Employment less workers on wage compensation
Sources: Thomson Reuters Eikon, Statistics Denmark
Coronavirus Impact Monitor – 26 June 2020 Page 5 Deloitte Economics © 2020Private spending
Danish spending continues to recover towards more normal levels
Spending in Denmark with card and MobilePay (2020 versus 2019) 1
• Based on cards and MobilePay for
160
around 1 million Danske Bank 150
personal customers, the latest 140
(100=same weekday in 2019)
spending data from Danske Bank 130
120
shows signs that spending continues
110
to recover towards normal levels. 100
Index
90
• Compared with late March 2020,
80
when total spending was down by 70
20%, spending has recovered to the 60
same nominal compared with last 50
27 Feb 7 Mar 16 Mar 25 Mar 3 Apr 12 Apr 21 Apr 30 Apr 9 May 18 May 27 May 5 Jun 14 Jun 23 Jun
year. However, we note that cash
usage is likely down and spending on Total 7-day moving average Index=100=100
cars is also down. Consequently, it is
estimated that overall spending Private spending on select sectors (2020 versus 2019) 1
remains below normal levels.
220
• Travel spending appears to be 200
(100=same weekday in 2019)
180
improving. Spending at Airlines and
160
Hotels & motels has been picking up,
140
in line with lifting of restrictions. 120
Index
• Spending at restaurants has been 100
80
picking up since mid-May 2020 in line
60
with the opening of the Danish
40
economy. 20
0
• We also note that spending at
7 Mar 16 Mar 25 Mar 3 Apr 12 Apr 21 Apr 30 Apr 9 May 18 May 27 May 5 Jun 14 Jun 23 Jun
electronics stores and grocery stores
Airlines Electronics stores Hotels & motels Index=100
appears to be above index 100.
Clothing stores Grocery stores Restaurants
Note, we have hidden some areas of the chart as the data is skewed by timing effects and is not representative
Note: 1) Spending data is based on transactions, both domestically and abroad, with cards and MobilePay in stores for around 1 million Danske Bank Danish personal customers. Excludes cash payments
and bank transfers. The charts show spending in 2020 compared with the same days in 2019 to correct for different spending patterns across the week. Source: Danske Bank
Coronavirus Impact Monitor – 26 June 2020 Page 6 Deloitte Economics © 2020GDP forecasts
The IMF, OECD and the World Bank have now all released a June update on their GDP
predictions for 2020 and 2021 – global GDP expected to fall by some 5.4% in 2020
• Since our last update, the IMF has released their latest growth projections for World and Eurozone. They now expect global growth to slow by 4.9% in 2020, compared
with their previous April prediction of a 3% fall.
• The OECD and the World Bank forecasts are broadly consistent with those from the IMF in the sense that they paint a picture of a sharp downturn in 2020, followed by a
recovery in 2021. The contractions of the economy is primarily due to major drops in Q1 and partly in Q2 2020. From Q3, economic activity is expected to increase
continuously. However, economy activity is not expected to be back on Q4 2019 levels within the next two years for Advanced economies.
• Please note that these forecasts assume that current containment efforts are effective in containing the COVID-19 outbreak. In case we get a second wave of infections
before the end of 2020, and the authorities impose a new round of lockdowns, the downturn is obviously going to be deeper, and recovery in 2021 is therefore likely to be
more moderate.
Denmark: GDP growt h Eurozone: GDP growt h World: GDP growt h
8% 8% 8%
6% 6% 6%
5.2%
4.9% 4% 4.9%
4% 1.2% 4% 2.9%
2.4% 2%
2% - 2%
- (2%) -
(4%) (2%)
(2%)
(6%)
(4%) (4%)
(8%)
(5.4%)
(10%) (9.8%) (6%)
(6%) (6.2%)
(12%) (8%)
(8%)
2015
2007
2015
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2016
2017
2018
2019
2020
2021
2005
2006
2008
2009
2010
2011
2012
2013
2014
2016
2017
2018
2019
2020
2021
2006
2018
2005
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2019
2020
2021
Historical (IMF) Avg. forecast Historical (IMF) Avg. forecast
Historical (IMF) Avg. forecast IMF OECD IMF OECD
IMF OECD World Bank World Bank
Note: Labels shown in the charts represent average forecast. GDP forecasts as of June 2020, with the exception of IMF’s forecast for Denmark which was made as of April 2020.
Source: IMF, OECD, World Bank
Coronavirus Impact Monitor – 26 June 2020 Page 7 Deloitte Economics © 2020Coronavirus heatmap
Deloitte Economics’ view on the short-term outlook across selected sectors in Denmark
Consumer Denmark
• Decline across all consumer indexes while intended spend remains low.
Energy & Resources Sector
• Coronavirus still affects short-term prices, but positive trends are appearing.
Short term Outlook
Financial Services
• Valuation recovery from the mid-March low point continues, albeit
uncertainty remains. Consumer Moderate impact Moderate recovery
Industrials
• PMI numbers surge to four-month high levels with sector expansion in the
United Kingdom and France. Energy & Resources Moderate impact Moderate recovery
Life Science & Health Care (LSHC)
• Swift recovery of the LSHC sector with listed companies trading above pre-
corona levels. Financial Services Moderate impact Moderate recovery
Real Estate
• Expectation-driven real estate market leads to price reductions in the short
term. Industrials Moderate impact Moderate recovery
Technology, Media & Telco (TMT)
• TMT sectors have been relatively resilient to COVID-19, as the world has
Life Science & Health
gone digital. Neutral/low impact Growth opportunities
Transport Care
• The transportation market in recovery following the opening of several
markets. Real Estate Moderate impact Moderate recovery
Public
• The pandemic has been costly and may affect public spending in the long
Technology,
term. Neutral/low impact Moderate recovery
Media & Telco
We refer to pages 11-19 for in-depth coverage of developments in the
industries above. Variations in the outlook within industries may occur. Transport Moderate impact Slow recovery
Sources: Deloitte analysis, Dansk Erhverv
Coronavirus Impact Monitor – 26 June 2020 Page 8 Deloitte Economics © 2020Key messages
Divergence between the pricing of risk in financial markets and economic prospects
• In Denmark and Europe in general, the virus appears to be broadly under control. However, the number of daily new cases in the World continues to rise rapidly. This
appears to be driven by emerging market countries like Brazil and India, but also the US experience a rapid increase in the number of confirmed cases.
• The COVID-19 crisis has caused dramatic supply and demand shocks in the world economy, and these shocks are inevitably causing major disruptions to trade. The COVID-
19 impact on equity markets has been most severe on the transport and energy sectors.
• An apparent disconnect between markets and the real economy raises the risk of another correction in asset prices.
• The IMF, OECD and World Bank have all released a June update on their GDP prediction for 2020 and 2021. Global GDP expected to fall by some 5.4% in 2020 with a
recovery in 2021.
• Governments’ response to the COVID-19 outbreak have varied across the world. An analysis indicates that the US/Swedish government response to COVID-19 appears to
have been less effective in dampening the outbreak compared to for instance Denmark, where the government responded quickly measured on a stringency index. It
remains an open question, though, as to how effective the Danish/US/Swedish response was in light of the associated economic and social consequences.
• The Danish consumer confidence index improved markedly in June, increasing from -8.8 to -3.1. The improvement in consumer confidence is an indication that the
contraction in the Danish economy appears to be moderating. This is also supported by consumer spending data that continues to recover towards more normal levels.
• The number of employed people in Denmark declined by 73 thousand from March to April. Without the wage compensations packages the decline would, however, have
been larger.
• Deloitte Economics will continue monitoring the impact of the coronavirus in Denmark and globally. Find our updates here
For questions on the contents of this report, please contact:
Majbritt Skov Tinus Bang Christensen Peter Lildholdt
Partner, Head of Deloitte Economics Partner Vice President
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 – 26 June 2020 Page 9 Deloitte Economics © 2020Industry outlook
Consumer Page 11
Energy & Resources Page 12
Financial Services Page 13
Industrials Page 14
Life Science & Health Care Page 15
Public Page 16
Real Estate Page 17
Technology, Media & Telco (TMT) Page 18
Transport Page 19
Deloitte Financial Advisory industry contacts Page 20
Coronavirus Impact Monitor – 26 June 2020 Page 10 Deloitte Economics © 2020Consumer Energy & Financial Industrials Life Science Public Real Estate TMT Transport
Resources Services & Health Care
Industry outlook: Consumer
Decline across all consumer indexes while intended spend remains low
Highlights from the industry (as of 24 June 2020)
110.0 Based on top 10 Consumers will spend less on restaurants, apparel and electronics. However,
105.0 companies restaurant/takeout spending indicates a positive development since last update
100.6
100.0
92.4 Consumers’ intention to spend more during the next four weeks
Indexed share price
95.0
88.6 Apparel/ Household Restaurant/
90.0 Alcohol
footwear
Books Electronics Groceries
goods
Medicines
takeout
85.0 78.5
80.0
75.0
70.0
-12% -10% -6% -13% 26% 20% 11% -9%
65.0
60.0
24 Dec 19 24 Jan 20 24 Feb 20 24 Mar 20 24 Apr 20 24 May 20 24 Jun 20 Consumers’ intended purchase channel
1 2 3
Retail Hospitality Consumer MSCI World
15% 14% 17% 15% 29%
16% 34% 47% 39% 18% 17%
20%
28% 27%
Retail index has moved from index 102.1 to 100.6 (since last update). 25% 29%
69% 67% 63% 68%
Hospitality index has moved from index 83.9 to 78.5 (since last update). 38% 33% 44%
28%
Consumer index has moved from index 91.9 to 88.6 (since last update).
Online/delivered Mixed In-store
Trading multiples and economic outlook
Index: MSCI World Retailing Index (top 10 companies) Latest consumer confidence index4 (as of April 2020) was 98.02, indicating a
Historical averages Coronavirus impact
(EV/FY0 EBITDA) (EV/FY0 EBITDA) somewhat doubtful attitude towards the future economic development,
possibly resulting in higher savings and less consumption among consumers.
-3.0x
101
13.3x 14.2x 17.0x
11.9x 14.0x
98
9 8 .0
95
Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr-16 Apr-18 Apr-20
10y avg. 5y avg. 3y avg. Jan 1, 2020 Current
Consumer confidence index (OECD-Europe)
Note: 1) MSCI World Retailing Index; 2) MSCI World Consumer Services Index; 3) MSCI Consumer Staples Index; 4) Based on OECD – Europe region
Sources: Capital IQ; MSCI; European Parliament; Deloitte State of the Consumer Tracker
Coronavirus Impact Monitor – 26 June 2020 Page 11 Deloitte Economics © 2020Consumer Energy & Financial Industrials Life Science Public Real Estate TMT Transport
Resources Services & Health Care
Industry outlook: Energy & Resources
Coronavirus still affects short-term prices, but positive trends are appearing
Highlights from the industry (as of 26 June 2020)
110 Hydropower generation
100
− Prior to Corona, electricity prices were already pressured in the Nordics due to
90
a warm winter, which increased the generation capacity of Norwegian
80
70
hydropower plants.
60 − Further, the mild winter decreased demand for electricity.
50
Lockdown affected demand
40
30 − The corona virus lockdown negatively affected demand for both public
20 institutions, private individuals and corporations.
1 Jan 20 1 Feb 20 1 Mar 20 1 Apr 20 1 May 20 1 Jun 20 1 Jul 20
Carbon market prices
Natural gas TTF, spot Coal API2, spot Nordic electricity future, Q3-20 − Lower emission of CO2 and other greenhouse gasses led to a decrease in
carbon prices.
Mild winter put pressure on Nordic electricity prices prior to Corona crisis.
− Coal became cheaper, lowering overall prices, as coal was marginally price
Electricity demand decreased marginally due to Coronavirus lockdown.
setting. This created a self-enforcing effect, which drove down prices even
Significant drop in carbon emissions resulting in lower prices. further.
Economic outlook
Selected futures
-34.4%
As expected, prices are starting to increase, as lockdowns are gradually lifted
-21.2% +3.7%
-55.7% globally. Nordic power had a short rally for a few weeks, while coal and gas are not
35 33 trending upwards.
26 23 26 25 25
11 The short-term impact on electricity producers has been significant, but we expect
prices to rebound in 2021. Short-term prices are still negatively affected, but long-
Nordic power, Q3-20 Nordic power, Q4-20 Nordic power, FY-21 EUA, Jun-20 term prices show positive trends, and the carbon market is returning to pre-crisis
Jan 1, 2020 Jun 25, 2020 levels.
Source: Thomson Reuters Eikon
Coronavirus Impact Monitor – 26 June 2020 Page 12 Deloitte Economics © 2020Consumer Energy & Financial Industrials Life Science Public Real Estate TMT Transport
Resources Services & Health Care
Industry outlook: Financial Services
Valuation recovery from the mid-March low point continues, albeit uncertainty remains
Highlights from the industry (as of 24 June 2020)
120 Banks and consumer finance
110 − Credit businesses that retain a large physical branch network or have IT inefficiencies
100 [94.1] will find a drag on their cost bases. This is at a time when they must work through
90 [88.1] increased loan loss provisions amplified by the adoption of IFRS9 accounting standard in
[85.3]
80 [81.0] 2018. A higher cost base juxtaposed against a continued low base rate environment and
70 an inability to generate high levels of net interest margin. Inefficient or subscale players
[66.7]
may need to look for new capital or become part of a wider market consolidation.
60
50 Insurance
[45.7]
40 − Lloyds of London estimates a USD 203bn underwriting loss for the insurance industry as
30 a result of the global pandemic. Obviously, some asset classes will fair better than others
1/31/20 2/28/20 3/31/20 4/28/20 5/29/20 (e.g., motor insurance will benefit from lockdown versus business interruption
Nordic Banks Nordic Insurance European AM
insurance). As such, dependent on products and attitudes to reinsurance, there may be
stress in the insurance industry.
Nordic Consumer Finance Nordic DCA MSCI World
Certain FS subsectors, including Nordic banks and asset managers, have recovered Asset Management
a significant portion of market value from the mid-March low point. Uncertainty, − A Deloitte study demonstrates that consumers expect to spend more on Wealth
particularly in consumer finance, and debt collection businesses continue to be Management services as a response to the COVID-19 crisis (click here to read the study).
priced into valuations, although recently gains have been made. Asset managers that have been successfully able to pivot from physical meetings to
Furthermore, uncertainty about the United Kingdom’s withdrawal from the EU, conduct sales and provide advice virtually may be able to capture market shares.
which has been affected by COVD-19, continues to weigh on valuation. However, the shock to equity markets will negatively affect income across the sector.
Trading multiples and economic outlook
Index: S&P Capital IQ1
The impact of the COVID-19-led recession on financial service firms will be felt, as
Market capitalization (1 Jan = index 100) Coronavirus impact (P/BV)3 government support schemes unwind over the coming months. Firms that have been
16-03-20 24-06-20 -0.4x affected by lockdown measures may trade through the summer months before losing
88 85 81 1.8x the battle with cash flow issues and debt servicing issues during the autumn.
65 69 67 67 1.4x
52 43 46 1.1x Financial services businesses that are easily able to interact with their clients online,
and offer a good user experience, are better placed to thrive during the recession.
Many of the tech elements, most notably the proliferation of smart phones, were not
European Nordic Nordic Nordic Nordic Jan. 1, Mar. 16, Jun. 24, available during the financial crisis. This provides customers with a greater number of
AM Banks Insurers Consumer DCA2 2020 2020 2020 alternative providers.
Banks
Notes 1) Indices are from Stoxx Europe 600 Financial Services and MSCI World; 2) DCA: Debt Collection Agencies; 3) P/BV is measured as average of Nordic Insurers, banks, and DCA.
Sources: A. https://www.theguardian.com/business/2020/may/14/lloyds-of-london-coronavirus-payouts
Coronavirus Impact Monitor – 26 June 2020 Page 13 Deloitte Economics © 2020Consumer Energy & Financial Industrials Life Science Public Real Estate TMT Transport
Resources Services & Health Care
Industry outlook: Industrials
PMI numbers surge to four-month high levels – with sector expansion in UK and France
Share price development year-to-date Manufacturing PMI for US and Europe reach 4-month high levels
Indexed share price as of:
110
23 June 11 June 49.6 US: With PMI reaching
US
100 39.8 almost 50, it indicates that
101.3 99.3
98.8 96.9 42.3
the development in the
90 Japan
94.8 91.3 26.5 manufacturing sector has
80
79.3 76.6 stabilised.
50.1
UK
70 40.7
The pick-up in US PMI
60 46.9 primarily stemmed from
Eurozone
39.4
50
only minor falls in output
1 Jan 20 1 Feb 20 1 Mar 20 1 Apr 20 1 May 20 1 Jun 20 Germany
44.6 and new orders.
36.6
Industrials Materials Automotive MSCI World
52.1
France IHS Markit Manufacturing PMI:
Since the sharp decline in stock prices on 10 June 2020, the industrial sectors have 40.6
Index =50: No change
slowly rebounded and are just short of highest level since pandemic escalation. Index 50: Expansion
Trading multiples
MSCI World Industrials Index MSCI World Materials Index MSCI World Automotive Index
Historical averages Coronavirus impact Historical averages Coronavirus impact Historical averages Coronavirus impact
(EV/EBITDA) (EV/EBITDA) (EV/EBITDA) (EV/EBITDA) (EV/EBITDA) (EV/EBITDA)
-1.1x +1.5x -0.6x
13.1x 14.2x 13.8x 12.7x 10.4x 11.5x 11.7x 11.8x 13.3x 10.1x 9.8x 10.0x 11.1x 10.5x
11.7x
10y avg. 5y avg. 3y avg. Jan 1, 20 Current 10y avg. 5y avg. 3y avg. Jan 1, 20 Current 10y avg. 5y avg. 3y avg. Jan 1, 20 Current
Since last update (11 June 2020), the EV/EBITDA Since last update (11 June 2020), the EV/EBITDA Since last update (11 June 2020), the EV/EBITDA
multiple is up from 12.4x to 12.7x. multiple is up from 12.8x to 13.3x. multiple remains unchanged at 10.5x.
Note: 1) Data as of 23 June 2020
Source: Capital IQ; MSCI World Indices; IHS Markit
Coronavirus Impact Monitor – 26 June 2020 Page 14 Deloitte Economics © 2020Consumer Energy & Financial Industrials Life Science Public Real Estate TMT Transport
Resources Services & Health Care
Industry outlook: Life Science and Health Care (LSHC)
Swift recovery of LSHC sector with listed companies trading above pre-corona levels
Highlights from the industry (as of 6 May 2020)
Indexed share price development
110 Collaboration is the new normal
105
103.6 − COVID-19 has further accelerated an ongoing trend of collaboration
100 99.2 among LSHC companies, scientists, and public institutions.
95
90 − Examples of recent private collaborations are:
85.1
85 − Bavarian Nordic and AdaptVac for COVID-19 vaccine
80
− Consortium of 15 large life science companies, including Novartis,
75
Johnson & Johnson, and Pfizer, to share knowledge
70
65
60 Race for COVID-19 vaccine or other treatment
22 Dec 19 22 Jan 20 22 Feb 20 22 Mar 20 22 Apr 20 − The antiviral, Remdesivir, has shown promising results in preliminary
1 2
Healthcare Life science MSCI World
trials with improved recovery time and potential survival benefits.
Significant recovery in both Health Care and Life Science in recent weeks continues. − Race for developing a vaccine is still ongoing, with a horizon of 12-18
Life Science trades above pre-corona levels. months.
Significantly faster recovery and better performance among Life Science and Health − According to Milken Institute, 123 candidate vaccines and 203 different
Care companies compared to the general market. treatment variations are being developed as of 7 May 2020.
Trading multiples and economic outlook
Index: MSCI World Health Care Index
Historical averages (EV/EBITDA FY0) Coronavirus impact (EV/EBITDA FY0)
LSHC companies trade above pre-corona levels.
0.0x Countries are reopening, and many health care systems are again focusing
13.7x 14.1x on other illnesses and treatments than COVID-19.
11.7x 14.2x 14.2x
Rapid recovery expected for LSHC companies unrelated to COVID-19
treatments, as demand for non-essential medications and equipment rises.
10y avg. 5y avg. 3y avg. Jan 1, 2020 Current Continued high demand for COVID-19 related therapies and equipment.
Note: 1) MSCI World Health Care Index (top 10 constituents); 2) MSCI World Pharmaceuticals, Biotechnology and Life Sciences Index (top 10 constituents)
Sources: Milken Institute, Deloitte Health Forward Blog, Capital IQ, NIH
Coronavirus Impact Monitor – 26 June 2020 Page 15 Deloitte Economics © 2020Consumer Energy & Financial Industrials Life Science Public Real Estate TMT Transport
Resources Services & Health Care
Industry outlook: Public
The pandemic has been costly and may affect public spending in the long term
Highlights from the industry (as of 26 June 2020)
A timeline for COVID-19 government response Towards normality
− Government’s focus is to move society towards normality and avoid an increase
in the reproduction rate.
From recover to thrive
− Continued pressure on government to increase the pace by which the economy
is reopened, and phase 3 of the reopening has been extended several times.
− Focus on how to stimulate growth and adapt to the new normal. A “Summer
package”, including pre-payment of holiday allowances, to stimulate economic
activity was introduced in mid-June 2020.
Deficit on public finances
− After a surplus in 2019, a deficit of 7.2% of GDP is expected in 2020. The deficit is
expected to be 1.8% of GDP in 2021.
− Public EMU debt is expected to increase from 33% of GDP in 2019 to 41% of GDP
in 2020.
− A European recovery fund of EUR 540bn has been introduced by the European
Ministers of Finance.
Economic outlook
Aid packages and focus on supporting the private sector through earlier start-up of planned investment and prepayment of suppliers are expected to ease the negative impact on the
economy.
Aid packages and the economic setback will have an immediate negative impact on public finances and may challenge government spending in the long term.
The severe and long-lasting financial and economic impacts of the pandemic depend on the effects of the aid packages and the strategy for the reopening of society.
Digitalisation in the public sector may be boosted, as the crisis has reinforced virtual ways of working.
Sources: Deloitte Insights, Government’s response to COVID-19. From pandemic crisis to a better future, April 2020, Ministry of Finance, May 2020
Coronavirus Impact Monitor – 26 June 2020 Page 16 Deloitte Economics © 2020Consumer Energy & Financial Industrials Life Science Public Real Estate TMT Transport
Resources Services & Health Care
Industry outlook: Real Estate
Expectation-driven real estate market leads to price reductions in the short term
Highlights from the industry (as of 26 June 2020)
110 2.0% Valuation
− Investment managers need to reflect the current uncertainty in their
100 1.8% valuations of property investments. Lack of transactions or comparables may
(2 Jan 2020 = 100)
Stock price index
90 1.5% leave challenges for asset managers.
Interest rate
− Emphasised by COVID-19, the FSA has turned its eyes on valuation of
80 1.3%
alternative investments, including real estate at asset managers (e.g., applied
70 1.0% valuation methodologies, handling of risks, and quality of data).
60 0.8%
Accounting
50 0.5% − IRFS 16 amendment for leases: in case of lease modifications (e.g., rent
01 Jan 22 Jan 12 Feb 04 Mar 25 Mar 15 Apr 06 May 27 May 17 Jun
concessions), lessee does not have to recalculate straight lining, but can
STOXX 600 Real Estate Index Danish long-term mortgage rates
account for it as no cash/rent payments during that period.
The leading real estate index is in general recovering from the COVID-19 chock in March 2020,
− However, this amendment only concerns the lessee, not for the lessor (i.e.,
but not back to covid-19 level yet. Despite the current challenges in some sectors, the industry
asset managers).
is in general better prepared financially.
Interest rates are now fixed at a higher level, which may last throughout the COVID-19 crisis.
Trading multiples and economic outlook
Index: Custom weighted average index1
Historical averages (EV/EBITDA) Coronavirus impact (EV/EBITDA) Price multiples are at pre-COVID-19 levels, and in general the major listed RE companies are
-0.6x well-positioned to handle the crisis.
27.6x 25.4x 27.3x 30.6x 30.1x Decreasing prices in 2020 for single-family houses and apartments in major Danish cities
are expected due to reduced volumes. However, recent data and news suggest modest
increases so far in major cities and price increases in many municipalities (source: boligsiden
Statistics). So, the growing optimism may prove us wrong, leaving a housing market in good
10y avg. 5y avg. 3y avg. 1 Jan 2020 Current shape before 2021.
Note: 1) Based on Collier International, Patrizia AG, Agate Ejendomme, Jeudan A/S, and Park Street Nordicom
Sources: Finans Danmark, Thomson Reuters Eikon, Capital IQ
Coronavirus Impact Monitor – 26 June 2020 Page 17 Deloitte Economics © 2020Consumer Energy & Financial Industrials Life Science Public Real Estate TMT Transport
Resources Services & Health Care
Industry outlook: TMT
TMT sectors have shown relative resilient to COVID-19, as the world has gone digital
Highlights from the industry (as of 24 June 2020)
120 TMT perceived as a defensive sector, which has less to lose from COVID-19
116
110 110
Telecom: Spend among consumers is often within a contract; demand is up; need
100 100
is not discretionary (new cars) or constrained (leisure).
96
90
Media and Entertainment: Financial impact varies across sub-sectors. Media
80
consumption up (e.g., Netflix, Disney+), but willingness/ability to pay may be
70 constrained, as the economic outlook exacerbates. Events (consumer, business)
60 mostly heavily restricted; cinemas, theatres, museums mostly closed. TV and
1 Jan 20 24 Jun 20 movie production mostly halted. Theme parks mostly closed.
Information Technology1 Communication Services1 Media and Entertainment1 MSCI World
Technology: Some segments (e.g., robotics, communication software) seeing
TMT companies are trading above the overall equity market. record demand; digital transformation being accelerated; companies catering to
SMEs may suffer from customer liquidity.
Media and Entertainment quickly recovered after the shockwave on the stock market. As
people stay home, the entertainment market is making records.2
Trading multiples and economic outlook
Index: MSCI World Information Technology1 Forrester has revised its IT spending forecast downward and expects a 50%
Historical averages (EV/EBITDA) Coronavirus impact (EV/EBITDA) probability that global tech markets will decline by 2% or more in 2020 if a full-
-0.1x fledged recession hits.
23.0x 25.4x 28.0x 27.9x Gartner expects global IT spending in 2020 to decline by +6%.
17.9x
Software spending is the subsector expected to show the highest resilience, while
computer equipment and IT consulting and systems integration services spending
10y avg. 5y avg. 3y avg. Jan 1, 2020 Current are expected to show weaker growth.
Note: 1) MSCI World industry indices used (top 10 companies for sector indices), 01-01-2020 = index 100; 2) In EMEA and selected Asian countries, physical games sales are up by 63% according to GamesIndustry.biz.
Source: S&P Capital IQ (June 2020), Gartner Market Databook (April 2020 update), Forrester Research (March 2020)
Coronavirus Impact Monitor – 26 June 2020 Page 18 Deloitte Economics © 2020Consumer Energy & Financial Industrials Life Science Public Real Estate TMT Transport
Resources Services & Health Care
Industry outlook: Transportation
The transportation market in recovery following the opening of several markets
Highlights from the industry (as of 25 June 2020)
130 Transportation stocks indicate belief in the market’s recovery
125
120 − The rapid spread of COVID-19 has had a major impact on global goods
115 transport, with ripple effects from the shortfall in demand for goods from
110
105 China.
100 101.0
100.8
100.6
95 93.3 − The recent surge in stock prices since the low point in mid-March 2020
90
85 indicates an expectation for a recovering demand global trade, as several
80
75 countries are now opening up, driving the recovery of physical retail.
70
65
60
Jun 19 Aug 19 Oct 19 Nov 19 Jan 20 Feb 20 Apr 20 Jun 20
Accelerated conversion to e-commerce to aid in recovery
− As of mid-April 2020, US retailers’ online YoY revenue growth was 68%,
MSCI World MSCI Transportation Danish Transportation Index
substantiated by 146% YoY growth in the number of online retail orders.
− A big rush on freight capacity and subsequent increase in freight rates are is
Transportation indices have largely followed the total market, as a recovering market implies expected, as demand recovers and companies are trying to get their products
an increased need for transportation of goods. on the water.
Trading multiples and economic outlook (as of Jun-25)
Danish-listed transportation companies1 The Shanghai Containerized Freight Index (SCFI) is down by 3.3% to 889 from its
Historical averages Coronavirus impact2
(EV/FY1 EBITDA) (EV/FY1 EBITDA) high 1023 in week 1, but up by 21.0% YoY.
+0.1x
7.5x 7.5x 7.4x 7.5x 1050
7.1x
950 989
4.6x 850
750
650
550
10y avg. 5y avg. 3y avg. Last close Trough Current 1 11 21 2019 31 41 51 2020
61 71
2019
Note: 1) A.P. Møller-Mærsk, D/S Norden, DFDS, DSV Panalpina, NTG, TORM, 2) Lowest YTD is 4.6x on March 20th
Source: Capital IQ, Shanghai Shipping Exchange, Forbes, IHS Markit
Coronavirus Impact Monitor – 26 June 2020 Page 19 Deloitte Economics © 2020Industry outlook: Deloitte contacts
How Deloitte can help you
Consumer Energy & Resources
• Please use the contact details opposite to get in touch
with our Financial Advisory industry group leaders and Mads Damborg Troels Ellemose Lorentzen
find out how we can assist you. Partner Partner
• We are well-positioned to assist in a range of tasks,
Email: madsdamborg@deloitte.dk Email: tlorentzen@deloitte.dk
such as those below.
Mobile: +45 30 93 54 81 Mobile: +45 30 93 56 90
Focus areas Financial Services Life Science & Health Care
Björn Lagerstam Mads Damborg
State aid packages
Partner Partner
Email: blagerstam@deloitte.dk Email: madsdamborg@deloitte.dk
Liquidity scenario analysis
Mobile: +45 30 93 48 30 Mobile: +45 30 93 54 81
Debt covenant advice and financing Government & Public Services TMT
Rikke Beckmann Danielsen Kasper Svold Maagaard
Business restructuring and M&A
Partner Partner
Email: rdanielsen@deloitte.dk Email: kmaagaard@deloitte.dk
Bankable business plan development Mobile: +45 30 93 56 92 Mobile: +45 30 93 54 54
Stakeholder management and process control Industrials Real Estate
Niels Stoustrup Tinus Bang Christensen
Impact assessment Partner Partner
Email: nstoustrup@deloitte.dk Email: tbchristensen@deloitte.dk
Economic modelling and forecasting Mobile: +45 30 93 59 15 Mobile: +45 30 93 44 63
Coronavirus Impact Monitor – 26 June 2020 Page 20 Deloitte Economics © 2020Appendices
Government policy response vs Q1 GDP Page 22
Danish business sector confidence indicators Page 23
European corporate sector earnings expectations Page 24
Danish 2020 GDP expectations Page 25
OECD GDP scenarios for 2020 Page 26
European market volatility and credit default probability Page 27
Government support packages Page 28
Deloitte Government Response Portal Page 29
Coronavirus Impact Monitor – 26 June 2020 Page 21 Deloitte Economics © 2020Government policy response impact
Q1 economic contraction broadly in line with the stringency of the lockdown in Denmark
• Several countries have published first estimates of GDP Q1 2020 GDP growth vs the Oxford COVID-19 Government
growth for Q1 2020. These initial GDP estimates Response Stringency Index1
0%
highlight how the coronavirus pandemic, and the
response to it, has affected the global economy. It is United
States Japan
expected that the duration of the outbreak, the public (1%)
South
health restrictions imposed to contain the virus spread, United Norway Korea
Kingdom
and other voluntary social distancing measures, will (2%)
affect the economic slowdown. Germany
Denmark
• The Government Response Stringency Index captures (3%)
Q1 2020 (QoQ) GDP growth
this information by collecting information on government
policy responses to measure the stringency of the
(4%)
lockdown country by country.
• The Government Response Stringency Index is a Italy
(5%)
composite measure based on nine response Spain
indicators, including school closures, workplace closures,
France
and travel bans, given the policies that have been put in (6%)
place in Denmark.
(7%)
(8%)
(9%)
China
(10%)
10 15 20 25 30 35 40 45 50 55 60
Average of daily ‘stringency’ index for Q1 2020
Note: 1) The index is a composite measure based on nine response indicators, including school closures, workplace closures, and travel bans, rescaled to a value from 0 to 100 (100 = strictest response).
Sources: Oxford COVID-19 Government Response Tracker, Thomson Reuters Eikon
Coronavirus Impact Monitor – 26 June 2020 Page 22 Deloitte Economics © 2020Danish business sector confidence indicators
Sentiment across key sectors stabilised in May 2020
• Recent data suggests that sentiment across key sectors in the Danish economy stabilised in May 2020 after falling sharply in April 2020.
• Within the Services and the Industrial sectors, sentiment deteriorated slightly in May 2020.
• Sentiment has improved across the Construction and Retail trade sectors, possibly reflecting a more positive outlook on the economy, as the government implemented the
first two phases to reopen society.
• Interestingly, sentiment within Industrials and Construction, while falling sharply in April 2020, did not reach the same levels as during the financial crisis, suggesting that
the COVID-19 related restrictions are perhaps not deemed to be as damning to the economy.
Industrials1 Services1
10 20
5
10
0
-5 0
-10
-15 -10
-20 -20
-25
-30 -30
-35
-40
-40
-45 -50
2004 2008 2012 2016 2020 2012 2014 2016 2018 2020
Construction1 Retail trade1
20 20
10
10
0
0
-10
-20 -10
-30
-20
-40
-30
-50
-60 -40
2004 2008 2012 2016 2020 2012 2014 2016 2018 2020
Note: 1) Net index which expresses the difference in percentage of companies, weighted by employees, which have stated positive and negative expected sector development.
Source: Statistics Denmark
Coronavirus Impact Monitor – 26 June 2020 Page 23 Deloitte Economics © 2020Corporate sector earnings expectations
Corporate earnings expectations have been severely curtailed since the outbreak
Change in net income consensus estimates between
31 January 2020 and 24 June 20201
• The selloff in European equity markets, triggered by the Energy
COVID-19 pandemic and the associated economic slowdown,
differs across sectors, see page 3. Consumer discretionary
• To shed light on the underlying drivers of this selloff across Transportation
sectors, the chart opposite displays changes in expectations of
stock analysts. In particular, the chart shows how stock Financials
analysts have downgraded consensus expectations for net
income across sectors and time: Industrials
− Energy, including oil and gas companies, saw its net Materials
income estimates being downgraded by 40%-80% in 2020-
2021 likely due to sharp declines in oil and gas prices. Utilities
− Consumer Discretionary, Financials, and Transportation Information Technology
are expected to be severely affected. On average, their
net income estimates for 2020 are more than 40% below Other consumer staples
pre-crisis estimates.
Communication services
− Health Care and Real Estate are expected to weather the
storm relatively well, both in the short (2020) and the long Real estate
(2023) term.
Food & staples retailing
− Food & Staples Retailing is the only sector whose
expectations for 2020 have improved, albeit the Health care
improvement is marginal.
(80%) (70%) (60%) (50%) (40%) (30%) (20%) (10%) - 10%
2020 2021 2022 2023
Note: 1) Based on analyst estimates for S&P Europe 350 Index constituent companies.
Source: S&P Capital IQ
Coronavirus Impact Monitor – 26 June 2020 Page 24 Deloitte Economics © 2020Danish 2020 GDP expectations
Latest survey of forecasters suggests a Danish GDP contraction of 5.4% for 2020
• The Danish Central Bank updated its forecast for Danish economy in 2020. The bank now expects a contraction of 4.1%, which is a slightly more positive outlook than its
previous (central) estimate of -5%.
• The Confederation of Danish Industry has based its projection of a 7% decline in 2020 GDP on a survey of its member firms.
• The Economic Councils project two scenarios for the Danish economy. In the optimistic scenario, the economy rebounds relatively quickly, and GDP declines by 3.5% in
2020. In the pessimistic scenario, a second wave of COVID-19 emerges during the autumn, and new containment efforts and restrictions are activated; new aid packages
are introduced. In this scenario, GDP contracts by 5.5% in 2020.
• Nordea updated its economic outlook for Denmark and the Nordic countries on 27 May 2020. Nordea expects the Danish GDP to contract 5% in 2020 before rebounding
4% in 2021. Previously, Nordea expected a 3% fall in output in 2020.
• The Danish Ministry of Finance has also updated its forecast, expecting a 5.25% contraction in national output in 2020 (compared to an earlier prediction of -4.4%).
• The OECD has forecast both a “single-hit” and a “double-hit” scenario, pencilling Danish GDP contraction at between negative by 5.8% and negative by 7.1%.
Denmark: GDP growth and 2020 market expectations
6%
3 .9 %
3 .2 %
4%
2 .3 % 2 .3 % 2 .0 % 2 .4 % 2 .4 %
1 .9 % 1 .6 %
1 .3 %
2% 0 .9 % 0 .9 %
0 .2 %
(0 .5 % )
-
(2% )
(4% ) (4 .9 % )
M edian, (5 .4 % )
(6% )
(8% )
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Historical (IMF) Danish Central Bank Ministry of Finance The Economic Councils
IMF Confederation of Danish Industry Danske Bank Nordea
OECD Median
Sources: IMF, OECD, Danish Central Bank, Danish Ministry of Finance, DØRS, Confederation of Danish Industry, Danske Bank, Nordea
Coronavirus Impact Monitor – 26 June 2020 Page 25 Deloitte Economics © 2020OECD GDP scenarios for 2020
Danish GDP contraction is expected to be less severe than in other nations, thanks in part
to its containment of the virus outbreak and lower exposure to vulnerable sectors
• The OECD released its latest forecasts for GDP growth across OECD nations, including for the Euro area and World.
• Two scenarios are projected, one in which another COVID-19 wave of infections and associated restrictions is avoided (“single-hit” scenario) and one in which a second
wave does occur (“double-hit” scenario).
• Under the single-hit scenario, global GDP is expected to fall by 6%, while the Eurozone is expected to be harder hit, with a 9% contraction. A further 3% and 2% contraction
is expected under a double-hit scenario.
• In Denmark, while the forecast contraction of 7% sounds high, it appears that relative to its developed country peers and World as a whole, the contraction is in the lower
end. There are various reasons for this, one being that the underlying virus outbreak has been well-contained compared to countries such as Spain and Italy. Another is
that the Danish economy is not as heavily exposed to sectors which have been particularly badly hit, such as tourism and energy, which have affected the United Kingdom
significantly. Denmark’s exposure to the pharmaceutical sector for instance has possibly acted as a buffer, as it has held up relatively well in comparison.
Projected 2020 GDP growth rates with and without a second COVID-19 wave
(1%)
(1%)
(5%) (5%)
(6%) (7%) (7%) (6%) (6%) (7%) (7%) (6%) (6%) (6%) (6%) (6%) (2%)
(8%) (8%) (9%) (8%) (8%) (8%) (8%) (8%) (8%) (7%) (8%) (8%) (8%) (7%)
(10%) (9%) (9%) (10%) (9%) (9%)
(11%)(11%)(11%)(12%) (1%)
(3%) (2%) (1%)
(2%) (2%) (1%) (1%) (1%) (2%) (1%) (6%)
(3%) (2%) (2%) (1%) (1%)
(2%) (2%) (1%) (1%) (8%) (8%) (8%) (8%) (8%) (7%) (7%) (7%)
(2%) (2%) (1%) (2%) (2%) (2%) (2%) (2%) (8%)
(9%) (9%) (9%) (9%) (8%)
(2%) (2%) (1%) (2%) (2%) (10%) (9%) (9%) (9%)
(10%) (10%) (10%)
(4%) (10%) (10%)
(12%) (11%) (11%) (10%) (10%) (10%) (10%)
(3%) (3%) (3%) (3%)
(11%) (11%)
(13%)
(14%) (14%) (14%)
(14%)
Greece
Austria
Italy
Ireland
Israel
Iceland
Switzerland
Slovak Republic
Poland
United States
Sweden
World
Germany
Mexico
Australia
Japan
Spain
France
Portugal
Lithuania
Finland
New Zealand
Hungary
Estonia
Netherlands
Turkey
Czech Republic
Belgium
Luxembourg
Norway
Chile
United Kingdom
Latvia
Canada
Slovenia
Denmark
Korea
(17 countries)
Colombia
Euro area
Single hit Double hit (additional decline)
Source: OECD
Coronavirus Impact Monitor – 26 June 2020 Page 26 Deloitte Economics © 2020Market volatility and European credit default probability
Equity market volatility remains elevated and comparable to the levels observed during the
global financial crisis
VSTOXX Index1
100
90
80 81
• The VSTOXX Index measures 30-day implied volatility of
74
Volatility index
the EURO STOXX 50 equity index and reflects investors' 70
uncertainty about future equity market moves. 60
• As shown, the coronavirus induced an increase in volatility to a 50
level comparable to that experienced during the global 40
37
financial crisis in 2008. Since then, volatility has declined but 30
still remains elevated. 20
10
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
iTraxx Europe Crossover index: Default probability2
%
• The chart opposite shows the development in the implied 70
61.7%
default probabilities based on the 5Y iTraxx European
60
Crossover spread of Credit Default Swaps and an assumed 50.2%
Default probability in %
recovery rate of 40%. It measures default probabilities on a 50
portfolio of sub-investment grade corporate debt in Europe. 43.3%
40
• With a current default probability of about 28%, we are still at
30
elevated levels compared with the last three years. 28.0%
20
• As the index reflects cost of debt, any refinancing will be costly
for leveraged companies, even though interest rates are close 10
to being record low.
0
JA JOJA JOJA JOJA JOJA JOJ A JOJA JOJA JOJA JOJ A JOJA JOJA JOJA JOJ A J
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%
Source: Thomson Reuters Eikon
Coronavirus Impact Monitor – 26 June 2020 Page 27 Deloitte Economics © 2020Government support packages
Massive state aid packages are launched to counter economic fallout from COVID-19
• The various lockdown measures in response to COVID-19 have State aid packages relative to GDP
halted economic activity in certain sectors and harshly
disrupted others. The resulting job losses and bankruptcies may Austria 10%
crate major economic strains for millions in Europe and Canada 6%
worldwide. China 1%
• Gigantic state aid packages have been launched across the Denmark 4% 13% 17%
world to counter the impact of the economic crisis. EU 4%
• EU finance ministers agreed on a EUR 540bn (3.5% of EU GDP) Finland 8%
emergency support package for countries hit by the France 17%
coronavirus. The measures aim to provide safety nets for Germany 22%
workers, businesses and sovereigns. Greece 5%
• As these state aid packages are launched, governments sharply Italy 21%
increase debts to finance the increased spending levels. On this Japan 20%
background, the questions about the following issues have New Zealand 4%
started start to emerge:
Norway 7% 3% 10%
− The sustainability of government debt funding Portugal 4%
Spain 9%
− The impact on inflation from sharp increases in
Sweden 2% 10% 12%
government spending
Switzerland 6%
The Netherlands 2%
UK 21%
USA 13%
Credit Fiscal
In some countries, including Denmark, aid packages also include credit measures like state-guaranteed loans.
Sources: Danske Bank, Deloitte Covid-19 portal as of 5 May 2020
Coronavirus Impact Monitor – 26 June 2020 Page 28 Deloitte Economics © 2020Deloitte Government Response Portal
Database of financial, tax, business and social measures announced by governments
globally
• To aid our clients in navigating the complex landscape of COVID-19 assistance programmes, we have developed a free digital portal that captures the latest financial, tax,
business and social measures enacted by country.
Access the portal!
Coronavirus Impact Monitor – 26 June 2020 Page 29 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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