Economic and financial risk insights - Worst is behind but protracted healing ahead

With lockdowns starting to be relaxed, the worst in macro is likely behind us. We still expect that this will be the steepest but shortest recession of our lifetime, albeit with a slow, protracted and uneven recovery. We foresee a capacity shortfall of 5-10% compared to the pre-COVID normal under the baseline in the major markets until a vaccine is widely available. Further structural issues such as a debt overhang and bankruptcies will likely continue to linger for some time.

Open slide in overlay
The worst is behind us for the cyclical macro picture. Finally, the Euro Area is also taking big steps forward on the policy response. Still, the structural healing of the global economy will be most challenging and protracted.
Jérôme Haegeli, Group Chief Economist, Swiss Re Institute

Key Takeaways

  • Our forecasts this month are largely unchanged, except for a downgrade to 2020 growth in China. 
  • "Old themes" are resurfacing, such as the US-China trade war, tensions between Hong Kong and China, and a no-trade-deal Brexit. 
  • The proposed EU recovery fund is a crucial positive step in the right direction for fiscal cooperation in Europe.
  • Significant new German fiscal stimulus will further support the recovery.
  • Downside risks have been revised lower, but still dominate potential for upside surprises on the macro front.

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Economic Outlook Economic and financial risk insights - Worst is behind but protracted healing ahead

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