Beyond the great lockdown, prospects for

global recovery

Tom Rogers
Associate Director, Macroeconomic Consulting
trogers@oxfordeconomics.com

May 2020
Most of the world has been in lockdown in early Q2

Global lockdowns
China
Italy
16% Spain
France
Germany
Past US (specific states)
UK
India
Australia
Japan
Other
65%

Present

0 20 40 60 80 100
Source : Oxford Economics/Haver Analytics % of global GDP
1
We expect restrictions to ease in the coming weeks

2
But it will be a very gradual process

Global: Lockdown stringency index

Stringency index score
100 Range of G20 scores
G20 (GDP-weighted average)
90 China
US
80 Italy
South Korea
70
60
50
40
30
20
10
0
12 Jan 02 Feb 23 Feb 15 Mar 05 Apr 26 Apr
Source : Oxford Economics/Blavatnik School of Government
3
Outline of presentation

• What do we know about the depth of the downturn?

• Will the crisis leaving lasting scars on the economy?

• Impact to Asia and Indonesia

Outline of presentation

• What do we know about the depth of the downturn?

• Will the crisis leaving lasting scars on the economy?

• Impact to Asia and Indonesia

What we know about Q1 so far is pretty terrible…

Global: GDP growth in Q1

Sweden
Indonesia
US
South Korea
Taiwan
Mexico
UK
Norway (Mainland)
Austria
Singapore
Eurozone
Belgium
Italy
Spain
Hong Kong
France
China
-12 -10 -8 -6 -4 -2 0
Source : Oxford Economics/Haver Analytics % q/q - seasonally adjusted
6
..it is well explained by length and severity of lockdown

Lockdown stringency & Q1 growth

%q/q GDP in Q1
0 Sweden
Norway
Mexico US South Korea
Taiwan
-2 UK
Indonesia
Austria
Singapore
-4 Eurozone
Belgium
Italy
Hong Kong
-6 Spain
France
-8
y = -0.0019x2 - 0.0255x - 1.0634
R² = 0.5284
-10
China

-12
0 10 20 30 40 50 60
Lockdown stirgency index (max = 100)
Source : Oxford Economics/Blavatnik School of Government
7
The pull back in consumer spending is a major factor

Global: GDP & household spending Q1 2020

Household spending GDP

US

South Korea

Spain

Hong Kong

France

China

-20 -15 -10 -5 0

Source : Oxford Economics/Haver Analytics % quarter (seasonally adjusted)

8
World trade collapse is sharper than the GFC

9
World oil demand has collapsed
Global: oil demand vs Dec 2019

10
Sharp move into surplus and then back to deficit
Global supply/demand balance

11
Prices will remain low until supply cuts bite
USD/b WTI Brent (Reference)
90
Forecast
80

70

60

50

40

30

20

10

0
Jan-17 Jan-18 Jan-19 Jan-20 Jan-21
Source: Oxford Economics/Energy Quants

12
Do equity markets know something we don’t?

13
Q2 is set to be even worse

World: GDP & PMI

Index
Global composite PMI (Adv two months, LHS) % y/y
65 Global GDP (RHS) 6

60 5
4
55
3
50 2
45 1

40 0
-1
35
-2
30 -3
25 -4
2001 2004 2007 2010 2013 2016 2019
Source : Oxford Economics/Haver Analytics/IHS Markit
14
Relative weakness of PMIs reflect lockdown status

Lockdown stringency & composite PMI

Lockdown Stringency in April
100
95 India
Italy
France
90
85 Turkey

80 UK

75 Canada

Brazil US
70
65 Australia

60
55 R² = 0.7746 Japan
Composite PMI in April
50
5 10 15 20 25 30
Source : Oxford Economics/Blavatnik School of Government/Google
15
Lockdown restrictions are only being eased slowly

Lockdown stringency in time

Composite index (max = 100)
100
Austria China
90 Czech Republic Germany
80 South Korea Norway
United States
70
60
50
40
30
20
10
0
01/01 18/01 04/02 21/02 09/03 26/03 12/04 29/04
Source : Oxford Economics/Blavatnik School of Government

16
Google data point to little pick-up in activity yet

G20*: Google mobility trends

% difference in visits from the median between Jan 3 & Feb 6
40 * GDP weighted, excludes China & Russia

20

-20

-40 Residential
Groceries & pharmacies
Parks
-60
Workplaces
Retail & recreation
Transit stations
-80
01 Mar 15 Mar 29 Mar 12 Apr 26 Apr
Source : Oxford Economics/Google
17
Outline of presentation

• What do we know about the depth of the downturn?

• Will the crisis leaving lasting scars on the economy?

• Impact to Asia and Indonesia

Households may be slow to react to end of lockdowns

UK poll results from late April

But perceptions will adjust as threat fades
Spread of SARS and perceived infection risk
New SARS cases on previous day
80

70

60

50

40
Day 10 after first outbreak
30 (first survey)

20

10
Day 62 after first outbreak (final survey)
0
0 5 10 15
Perceived chance of infection, %*
Source : Oxford Economics/Lau, Yang, Tsui & Kim (2003)
*Per cent of respondents viewing risk as large or very large. Based on surveys of Hong Kong public
conducted between 21 March 2003 (10 days after first outbreak) and 12 May (day 62).
But perceptions will adjust as threat fades

G20*: Google mobility trends - retail & recreation

% difference in visits from the median between Jan 3 & Feb 6
20 * Excludes China & Russia
10
0
-10
-20
-30
-40
-50
-60 G20 range
US
-70 Germany
-80 South Korea
Brazil
-90 Italy
G20 average (GDP weighted)
-100
01 Mar 15 Mar 29 Mar 12 Apr 26 Apr
Source : Oxford Economics/Google
Still expect a big initial bounce

World: GDP
% quarter Forecast
Non-China EM q/q contribution
6 China q/q contribution
Advanced economies q/q contribution
4 Global % quarter

-2

-4

-6

-8
2007 2009 2011 2013 2015 2017 2019 2021
Source : Oxford Economics/Haver Analytics
22
 It is a similar story in the travel industry

Covid-19 scenario losses: Demand

Percentage difference from counterfactual
0% 0% 0%

-10%

-13%-13% -13%-13%-13% -12%-12%-12%

-20% -15% -14%
-18%

-30% -25%

-40% -35%

-42% -43%
-50%
-50%

-60% -55%

-70% -65%
-70%

-80% -76%
-81% -79%
-90%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2020 2021

23
But output remains below the pre-crisis path

Global GDP
Q4 2019 = 100
115 Average gap
January forecast in 2023 -1.7%
of GDP
Current forecast
110

105

100

95

90
2019 2020 2021 2022 2023
Source : Oxford Economics/Haver Analytics
24
Higher savings rates are a risk

25
Policy response will influence medium-term fallout

Effect of policy responses to epidemics/pandemics

% loss in GDP
0.0

-0.5

-1.0

-1.5

-2.0

-2.5

-3.0

-3.5

-4.0
Year of outbreak Five years on
-4.5
High spending response Low spending response
Source : Ma, Rogers and Zhou (2020)

26
Fiscal response has been large, but design crucial too

Global: Fiscal impulse

Ppts of potential GDP
4.0 Advanced Economies Emerging Markets World
3.0 Forecast

2.0

1.0

0.0

-1.0

-2.0

-3.0

-4.0
2000 2005 2010 2015 2020
Source : Oxford Economics/Haver Analytics
27
Deficits matched by central banks

G4: Deficits and central bank bond purchases

US$bn
4500
4000 Bond purchases Bond issuance
3500
3000
2500
2000
1500
1000
500
0
-500
-1000
2006 2008 2010 2012 2014 2016 2018 2020F
Source : Oxford Economics/Haver Analytics
28
Risks to the baseline

• To the upside, medical advancements and greater

fiscal support could see a marginally stronger upside

• To the downside, longer and more stringent lockdowns

in the absence of sufficient policy support could lead to
a financial crisis and prolonged impact on medium
term growth rates.

• The baseline is positioned at the upper end of the

range reflecting the non linear risks of a broader
financial crisis
Scale of medium term losses is potentially huge

30
Conclusion

• The H1 slump could be more than twice as large as

the GFC recession. But the nature of the shock points
to a sharper rebound as restrictions unwind.
• There are risks on both sides but our baseline
assumes around 1.7ppts of lost output in the medium
term.
• Risks remain heavily skewed to the downside due to
the proximity of the tipping point into a broader
financial crisis.
• In many ways this crisis will just accentuate many of
the medium term trends we already saw – state
intervention, lower for longer, low inflation.

31
Once in a generation economic collapse

32
Outline of presentation

• What do we know about the depth of the downturn?

• Will the crisis leaving lasting scars on the economy?

• Impact to Asia and Indonesia

Fiscal packages need to be cyclical-adjusted
Central Banks all have space to cut more
A strong rebound in 2021
Growth rebound in Indonesia to be more U-shaped
Containing the virus is key to restore confidence
Significant widening of fiscal deficit coupled with…
…external vulnerability pose macro risks to IDR