Rabobank: Our Coronavirus Base Case Is Rapidly Shifting From “Bad” To “Ugly”
Regular readers will know that our four projected COVID-19 scenarios were “Bad, Worse, Ugly, and Unthinkable”. Current news today suggests risks that the base case is rapidly shifting from “Bad”, meaning only China is impacted, to “Ugly”, where both emerging Asia and developed economies see soaring infection rates and deaths.
After all, following Vietnam, Iran now has eight deaths and an uncertain number of cases, prompting schools and universities to closed and the borders with Afghanistan and Pakistan to be sealed from the other side. For an economy already being crushed by sanctions, this is all that it needed. More worrying for markets, South Korea (with a GDP of over USD1 trillion) has also been swamped by hundreds of new cases, a 20-fold leap in just five days, and, as in China, is seeing the highest-level emergency declared, cities on lock-down, gatherings and travel bans in place, and the national assembly additionally suspended. Samsung has had to shutter at least one factory, in the city of Gumi. The Asian economy, already reeling, it about to suffer another major kick.
Worse, in Europe there also are over 160 cases in a cluster in northern Italy, with three deaths so far, and the regions of Lombardy and Veneto, the industrial and financial heartlands, in both panic and lockdown. Venice’s Carnival has been cancelled, and so was a recent fashion show. Italy is 11% of Eurozone GDP, and those two regions are 30% of Italy’s GDP. For a Eurozone already close to recession, that shock could well be more than enough to generate a downturn.
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