Handicapping the Paths for the Pandemic Economy - Decisions Better Faster - Moody's Analytics
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Better
Faster
Decisions
Handicapping the Paths for the Pandemic Economy
Mark Zandi, Chief Economist
Cris deRitis, Deputy Chief Economist June 2020
Moody's Analytics operates independently of the credit ratings activities of Moody's Investors
Service. We do not comment on credit ratings or potential rating changes, and no opinion or
analysis you hear during this presentation can be assumed to reflect those of the ratings agency.
21 Cataclysmic Economic
Why Economics MatterShock…Pandemic Upends Global Economy
Business cycle status as of May 2020
Expansion
Recovery
At risk
In recession
Sources: Moody’s Analytics
June 2020 4U.S. Economy Struggles Most
Unemployment rate through Apr 2020, %
20
U.S. U.S. corrected
18
Canada unemployment rate
16
Germany
14 Australia
12 Japan
10
8
6
4
2
0
07 08 09 10 11 12 13 14 15 16 17 18 19 20
Sources: National statistical bureaus, NBER, Moody’s Analytics
June 2020 5More Infections, Worse Downturn
Confirmed infections per mil inhabitants. For countries with unemployment rate data available for Apr 2020
12 Change in unemployment rate, Apr 2020 to 2019Q4
U.S.
10
Japan y=0.0009x-0.116
8 Taiwan R²=0.29
Canada
South Korea
6
Hungary
4 Hong
Kong Peru
Denmark
2 Poland Russia Sweden Chile
Brazil Switzerland
Germany Netherlands Infections per million inhabitants
0
0 1,000 2,000 3,000 4,000 5,000 6,000
Sources: WHO, Government sources, Moody’s Analytics
June 2020 62 …But the Recession
Why Economics Is Over
MatterGlobal Businesses Re-Open
Google mobility for the workplace, 7-day moving average, 0 = pre-COVID
20
10
0
-10
-20
-30
U.S.
-40
U.K.
-50 Hong Kong
-60 Brazil
-70
-80
March April May
Sources: Google, Moody’s Analytics
June 2020 8U.S. Lockdown Winds Down
Share of GDP and # of counties shutdown
30 2,800
25 2,400
2,000
20
1,600
15
1,200
10
800
# of counties shutdown (R )
5 Share of GDP shutdown, % (L) 400
0 0
17-Mar 24-Mar 31-Mar 7-Apr 14-Apr 21-Apr 28-Apr 5-May 12-May 19-May 26-May
Sources: BEA, NY Times, Moody’s Analytics
June 2020 9Central Banks Erect a Firewall
Assets held outright on the Federal Reserve’s balance sheet, $ tril
7
Credit facilities Repos MBS and Agency Treasuries Other
6
5
4
3
2
1
0
06 08 10 12 14 16 18 20
Sources: Federal Reserve, Moody’s Analytics
June 2020 10Aggressive Global Fiscal Policy Response…
Fiscal support as of Apr 2020, % of 2019 GDP
Japan
U.S.
Australia
South Korea
India
Canada
Brazil
Germany
U.K.
France
China
Mexico
Russia
Italy
Spain
0 5 10 15 20 25
Source: Moody’s Analytics
June 2020 11…That Cushions the Blow (Temporarily)
U.S. Personal income, $ tril, SAAR, change from 2019Q4
4
Rental and interest income Dividend Income Proprietors' income
3 Wage income Pass-through limitation easing Expanded UI benefits
Economic Impact Payments Automatic stabilizers Disposable income
2
1
0
-1
-2
20Q1 20Q2 20Q3 20Q4 21Q1 21Q2 21Q3 21Q4
Sources: BEA, CBO, Moody’s Analytics
June 2020 123 Alternative Paths Matter
Why EconomicsAlternative Scenarios
Updated each month S0 Upside (4th Percentile)
The baseline forecast (50/50 probability) S1 Upside (10th Percentile)
is the “most likely outcome” based on
current conditions and our view of where S2 Downside (75th Percentile)
the economy is headed. S3 Downside (90th Percentile)
We run multiple simulations to develop a S4 Downside (96th Percentile)
probability distribution of outcomes,
S5 Slower-Trend (Narrative)
ranking by unemployment and identifying
percentiles. S6 Stagflation (Narrative)
S7 Next Cycle Recession (Narrative, U.S. Only)
S8 Low Oil Price (Narrative)
CF Consensus Forecast
CS Constant Severity
Scenario Assumptions and Narratives are fully documented.
June 2020 14V, W, U, L? A Swoosh Recovery
U.S. Real GDP, % change from start of recession
20
Baseline (50%ile) S0 (4%ile)
15 S1 (10%ile) S2 (75%ile)
S3 (90%ile) S4 (96%ile)
10
5
0
-5
-10
-15
20 21 22 23 24
Source: Moody’s Analytics
June 2020 15Commercial Real Estate Market Will Be Slammed
U.S. Commercial property price index, % yr ago
20
10
0
Baseline
-10
Scenario 0
Scenario 1
-20
Scenario 2
-30 Scenario 3
Scenario 4
-40
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
Sources: Reis, Moody’s Analytics
June 2020 164 Epidemiological
Why EconomicsAssumptions
MatterU.S. EPI Assumptions
Paths Current S0 S1 BASELINE S3 S4
EPIDEMIOLOGICAL
Total Infections 1.8 mil
1.9 mil 2.2 mil 2.4 mil 3.3 mil 4.1 mil
(Confirmed) (22K/day)
Peak Infections Peak in April Peak in April Peak in April Peak in April Peak in June Peak in June
Case Fatality 5.5% 5.4% 5.6% 6.3% 8.0% 9.3%
Hospitalization Rate 12% 10% 11% 12% 15% 20%
Abatement Date
Abate by June Abate by June Abate by July Abate by August Abate by August
(5 Demand-Side Cross-Currents
Why Economics MatterGlobal Businesses Are Shell-Shocked
% of Moody’s Analytics global bus. survey respondents that are…
90
Investing
80 Hiring
70 Raising prices
60
50
40
30
20
10
0
03 05 07 09 10 12 14 16 18
Source: Moody’s Analytics
June 2020 20Double-Dip Recession Without More Fiscal Support
U.S. real GDP, 2012$ bil
21,000
With anticipated fiscal rescue
20,000 Without anticipated fiscal rescue
19,000
18,000
17,000
19 20 21 22 23
Sources: BEA, Moody’s Analytics
June 2020 216 How Much Structural Damage
U.S. Businesses Are Paying Increasingly Late…
Top 10 weakest and strongest 3-digit NAICS, April 2020
Employment B2B Spending
NAIC Industry 2019, ths % Late Change yr ago
721 Accommodation 2,077.4 69.0 44.5
512 Motion picture and sound recording 442.8 54.0 32.8
711 Performing arts, spectator sports and related 516.7 49.2 24.1
722 Food services and drinking places 12,068.7 47.6 22.7
712 Museums, historical sites; and similar 173.0 46.4 24.1
448 Clothing and clothing accessories stores 1,299.2 45.3 19.1
315 Apparel manufacturing 110.4 44.7 18.0
323 Printing and related support activities 424.7 38.8 9.5
482 Rail transportation 174.5 38.2 2.3
481 Air Transportation 503.3 37.6 9.6
Total 150,935.4 29.4 7.5
454 Nonstore retailers 562.7 26.0 8.2
522 Credit intermediation and related activities 2,651.2 25.9 6.2
425 Wholesale electronic markets and agents and brokers 530.9 25.8 3.7
452 General merchandise stores 3,037.8 24.1 5.2
321 Wood product manufacturing 409.0 23.4 2.0
811 Repair and maintenance 1,352.2 22.1 3.6
444 Building material and garden equip. and supplies dealers 1,296.4 20.7 2.3
524 Insurance carriers and related activities 2,790.1 20.6 4.0
623 Nursing and residential care facilities 3,378.6 20.1 1.9
441 Motor vehicle and parts dealers 2,034.9 18.9 4.5
Note: Excludes NAICs with fewer than 25,000 employees in 2019 and in public administration and agriculture
Sources: Cortera, Moody's Analytics
June 2020 23…and Business Bankruptcies Surge
U.S. monthly Chapter 11 filings as of May 27
35
Businesses with over $50 mil
30
in liabilities
25
20
15
10
5
0
07 08 09 10 11 12 13 14 15 16 17 18 19 20
Sources: Bloomberg, Moody’s Analytics
June 2020 24Running Out of Fiscal Space
Sovereign borrowing capacity given current yields
450
Norway Circle size=Real GDP, $
400
Sweden Y-axis: Fiscal space
350 X-axis: Debt-to-GDP ratio
China
300
U.S.
250
Spain
200 Russia
150 Italy
100 France Greece
Mexico India Brazil
50 Germany Japan
0 Egypt Argentina
Turkey S. Africa
-50
0 50 100 150 200 250
Source: Moody’s Analytics
June 2020 25Globalization Will Be Diminished
Global trade and industrial production, % change yr ago
30
Merchandise world trade, 2010 US$ Industrial production
20
Nov 2018 – Trade War
10
0
Jan 2020 – Covid-19
-10
Data through Mar 2020
-20
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Sources: CPB World Trade Monitor, Moody’s Analytics
June 2020 26Q&A
Further Questions? Contact us at help@economy.com
MORE INFORMATION
moodysanalytics.com/covid19scenarios
Forecasts for 100+ countries are available for download through our
Data Buffet service, via our Excel Add-in or API.
moodysanalytics.com/scenariostudio
Users can also create their own scenarios based off our Global
Macroeconomic Forecast Model using our Scenario Studio platform.
June 2020 27Better
Faster
Decisions
Contact Us: Economics & Business Analytics Offices
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