Coronavirus: Short‐term pain but strong rebound likely

▪ Attention has understandably focused on limiting the damage from the short‐term effects of the coronavirus outbreak. But it's likely that, once disruption and uncertainty fade, the rebound in activity will be strong. It's important for firms to position themselves for such a recovery. ▪ Historical evidence supports this view. In the past 200 years, short recessions have typically been followed by robust recovery. Long‐term impacts from natural disasters have generally only been evident for specific hazards. Except for AIDS, longer‐term pandemic effects also appear to have been contained. ▪ Surveys during the 2003 SARS and 2009 influenza outbreaks highlight one explanation for time‐limited impacts. Public fears increased alongside rising infection rates, but they dissipated promptly as outbreaks came under control. ▪ Our modelling is consistent with these stylised facts. In our coronavirus pandemic scenario, global growth grinds to a halt in Q2 2020 but then rebounds to a rapid pace within a year. With much of the initial output loss recovered in a relatively short period of time, long‐term impacts are limited. ▪ But there are risks to this view. The period of disruption could be longer than anticipated, depending on the potential spread and seasonality of COVID‐19 and policy actions to mitigate the fallout. Opinion polls also highlight the potential risk of larger, more persistent effects for some countries. ▪ Moreover, coronavirus‐related weakness and associated financial distress could expose other key vulnerabilities ‐ for example related to deteriorating corporate sector balance sheets and fragile trade relations. These would be expected to have persistent effects on global activity over the coming years.