A two-month quarantine can mean a recession of -3.6% in the Eurozone’s annual GDP

The Corner

Photo by Kelly Sikkema on Unsplash
Photo by Kelly Sikkema on Unsplash

The global economy is on track to contract significantly this quarter, enough to end the ten-plus years of expansion following the GFC. By looking at the decomposition of the US and Eurozone GDP and using a consumption-cut quarantine scenario, we can estimate the impact of the current social distancing measures on these two major economies. In quarterly terms, a quarantine that would last for two months (as in China), with 90% of the population complying and cutting consumption by 70%, would result in a -5% (qoq) growth shock. This would bring 2020 US growth to -2.9% and Eurozone growth to -3.6% (yoy), accounting for growth normalisation in the second half of the year. According to the scenario, 2020 could see the first global recession since the Great Financial Crisis.

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