Earnings Call, Conference Presentation, Webinar
An Update on the Economic and Public Health Implications of Coronavirus for Europe
Goldman SachsSharmin Mossavar-Rahmani, Dr. David Heymann, Sven Jari Stehn, Silvia Ardagna, Peter Oppenheimer, Sharmeen Mosavar-Rahmani
- Global case numbers and fatalities are projected to rise as the virus spreads from China to Europe and the United States, with the infection curve eventually trending down due to natural immunity or a high proportion of asymptomatic cases, though the exact mechanism remains unknown.
- The entire global population is expected to become susceptible at some stage, with a case fatality ratio estimated near 1% if hospital capacity is sufficient, while transmission dynamics in China remain unclear due to potential under-testing or differences from influenza transmission.
- Antibody testing is expected to be validated soon for identifying past infections, but home kits are not yet realistic due to specificity requirements; if robust home testing becomes available, it could identify past infection but cannot confirm protection against reinfection.
- Most experts anticipate vaccine availability no earlier than the end of the coming year, with early fall considered an optimistic timeline, requiring global production capacity to supply primary workers, while the number of doses and duration of protection remain uncertain.
- Therapeutic interventions including chloroquine, antivirals, and plasma from survivors are expected to undergo clinical trials to assess efficacy in preventing infection or modifying illness course, provided plasma is administered early.
- The reproductive number is increasing, and case growth in countries like South Korea and Singapore is expected to continue, prompting nations that implemented precautionary measures to prepare for additional restrictions as normal dynamics resume.
- The World Health Organization is expected to develop guidelines for unlocking measures based on risk analysis, while most European countries are not expected to end social distancing without a complete assessment of its impact, relying on public adherence to hygiene and distancing to modify the pandemic curve.
- A global recession is projected for 2020 with a 1% contraction in activity, driven by a deep downturn in Europe featuring a 9% GDP contraction in the euro area and 7.5% in the U.K., which is roughly twice the size of the financial crisis.
- Domestic demand is expected to suffer substantial hits from containment measures, with supply chain disruptions continuing as China and Italy interrupt the flow of intermediate goods to Europe.
- Economic decline is anticipated primarily in the first half of the year, with a 4% drop in Q1 and an 11% drop in Q2, reaching a trough in April before a steady rebound occurs in Q3 and Q4 with an average growth rate of about 4%.
- The economic recovery is expected to be fueled by the relaxation of containment measures and coordinated fiscal and monetary stimulus, including the Bank of England's commitment to finance fiscal expansion.
- Fiscal measures in Europe are expected to fall short of U.S. fiscal easing, with the Italian government potentially announcing a second fiscal package, while the European Central Bank's quantitative easing commitment may be tested by the need for expanded size.
- The introduction of common euro area bonds is considered premature, though it could catalyze institutional reforms, and the European equity market is expected to price in earnings declines that may be smaller than the actual 20% drop indicated by top-down models.
- The current market low is not expected to form in the immediate short term, with average returns projected to be positive over the long term, specifically around 16% over 12 months and 40% over 24 months from current valuation levels.
- Probability models indicate a positive return about 70% of the time over six months, 88% over 12 months, and 100% over 24 months from current levels, supporting an expectation of a strong long-term rebound for European equities despite the current downturn.