Will the Coronavirus Crisis be worse than the Great Recession? Nobody knows.
This is what I liked the most of this morning’s read on the subject. “Gilles Moec, chief economist at French insurer Axa, said that trying to plot the disruption from the virus was almost impossible ‘Our forecasting models are not set up to deal with this scenario’.” I found it here.
To start thinking about this question we must disentangle and calculate at least six types of costs (and benefits): transitory costs from permanent costs, distributional costs from aggregate costs, the costs from the epidemic and the costs from the costs of the stampede. These calculations are hard to make.
All of them depend on how long the epidemic and the containment measures last for. Suppose the crisis lasted for one quarter of 2020 in every country of the world and that all economic activity came to a stand-still during that time. The local crises do not need to be simultaneous. They can affect different countries at different times in the year. Then the cost of the total stand-still would be 25 percent of GDP. Normalize 2019 Real World PPP GDP at 100. The latest, pre-crisis IMF forecast growth rate for 2020 was 2.9 percent. This puts the forecast Real World PPP GDP for 2020 at 102.9. Three quarters of that number is 77.175. This means that the Real World PPP GDP growth rate for 2020 would be —23.825 percent. Do you buy this calculation?
Stay tuned. More soon.