Analysis conducted by the Swiss Re Institute suggests that coronavirus-related shutdown measures are driving a 20-25% reduction in economic activity among most advanced markets.
The different sector compositions of countries will be a main factor in determining the size of the impact, with emerging markets likely to be impacted more given their larger consumer-facing sectors.
Meanwhile, large public services and manufacturing sectors will contribute to stronger resilience in some other economies.
Swiss Re Institute’s report notes how this current crisis is different from a typical economic downturn as the services sector, which is usually more stable, has been hit harder than manufacturing.
This is because the containment measures to combat the COVID-19 pandemic have disproportionately restricted services, with largest output losses seen in hospitality, wholesale and retail trade, air travel, and other consumer facing areas.
Among advanced economies, Spain was cited as an exception given its large hospitality sector (6.9% of gross value added), compared to 1-3% in others.
Meanwhile, Germany has a large manufacturing footprint – a sector that is less affected by the shutdown in most countries with the exception of Italy, where all non-essential manufacturing has been shut.
While Swiss Re’s estimation illustrates sectoral vulnerabilities to shutdown measures, it says the eventual economic impact will also depend on other factors including fiscal and monetary policy reactions.
For instance, compared to emerging markets, most advanced economies have relatively generous unemployment schemes, which will protect a part of employees’ incomes and therefore consumption.
Also, many central banks reacted quickly by cutting policy rates and actioning liquidity and lending schemes, which will enable suffering companies to continue operating. Other central banks had less capacity to do so.