Economy absorbs unseen shock

With an expected negative growth of -3.3% of global GDP in 2020, the Covid-19 crisis hits the global economy like a meteorite. Euler Hermes’ economists predict unprecedented trade losses, a high increase in the number of insolvencies and a massive loss of jobs. Despite the prospect of an exit from the lockdown, the economy will not immediately return to full strength. Both a U-shape scenario and a much more pessimistic L-shape scenario are possible.

It seems that the global economy is heading for the worst recession since WWII. The global economic contraction in 2020 is estimated at -3.3%. That means the equivalent of $9,000 billion. To give you an idea, this corresponds to the GDP of Germany and Japan combined. The consequences of the Covid-19 crisis are twice as severe as after the financial crisis of 2008. More than half of the world's population is in lockdown.

Some numbers

The numbers illustrate the hush reality. Belgium too, is hit hard.

Economic growth – evolution of the GDP


Situation before the crisis


U-shape scenario*


L-shape scenario


U-shape scenario


L-shape scenario



















* Assuming a lockdown of 2 months and a very gradual exit

No reason for euphoria

Although we are looking forward to a de-confinement, there is no reason for too much enthusiasm yet. Most economies will gradually restart, but they will probably only function at 70 to 80% capacity for a few more quarters. Also on the stock and capital markets, it looks like it will get worse before it gets better.

Whereas economists first assumed a scenario in U-shape, with a smooth recovery after a deep crisis, that is not certain today. There are also signs that we are heading for a protracted crisis in L-shape. Where it may take several years before the economy is back on track.

Rescue has a price

At the beginning of the crisis, many countries took massive measures to mitigate the immediate financial, economic and social costs of the crisis. So did Belgium. Think of temporary unemployment, government support for companies, deferral of payments... That costs an awful lot of money. The price of saving jobs, for example, exceeds more than 1.5% of their GDP in most countries. Public debts are therefore enormous. Central banks also made every effort to prevent a crash.

Step by step

Now it is time to look ahead to get out of this crisis.  It is almost certain that we will only leave this phase of confinement very gradually. Each country will do so at its own pace and that may take three to four months. Our economists predict four phases. From full lockdown, to gradual national and then international re-opening until finally a full restart. Some sectors, such as construction, may pick up activity faster than, for example, hotels, restaurants and retail. However, back to business as usual is not on the table before mid-2021 and will depend on a vaccine being in place.

The road to recovery also differs per region. For example, Europe and the US seem to be choosing diverging pathways, China confirms a partial rebound and emerging markets are facing a perfect storm.

Keep calm and carry on

To ensure that we get a U-shaped recovery of the economy and not the dreaded protracted crisis (L-shape), unprecedented policy decisions will be needed. Whereas the focus used to be on emergency liquidity support, today carefully chosen targeted and increasingly conditional measures are necessary to prevent bankruptcies and revive the economy to prevent it from becoming a kind of zombie.

Read the full study here

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