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The Economic Blow of a Second Corona Wave
May 26, 2020
An economic look into the future
The Robert Koch Institute in Germany predicts a second wave of COVID-19 infections for the fall of 2020. How would such a development impact the economy in Austria and in CEE countries? Andreas Schwabe, Senior Economist at Raiffeisen Bank International AG (RBI) and a graduate of the Global Executive MBA, has tackled this question and presents a variety of potential scenarios.
Epidemiologists agree on one thing: there are more than just one wave of infections during a pandemic. The question is, how many waves will there be and when will they hit? The lockdown in Austria and other parts of the world has left gaping holes in the national budgets and turned out to be an existential threat to numerous enterprises.
Could Austria and other CEE countries even afford another lockdown? And what are the business forecasts for the next year? Andreas Schwabe, Senior Economist at Raiffeisen Bank International AG (RBI) and an alumnus of the Global Executive MBA, has taken a close look at these questions.
Recovery Without a Second Wave
“Most business forecasts for next year assume that there will not be a substantial second wave of Covid-19 infections,” Andreas Schwabe says. In that case, analysts at RBI and the International Monetary Fund (IMF) predict that we will see significant economic recovery next year. Read more about this forecasts in the article Coronavirus Crisis: CEE Experiences Slump.
What a Difference a Letter Makes: Realistic U, Disastrous L
“In an IMF scenario that operates on the assumption of a second wave in fall and winter, a further slump of the global GDP by 5 percent could be expected,” Andreas Schwabe says.
Andreas Schwabe
- Senior Economist at Raiffeisen Bank International AG
I strongly doubt that there would be another large-scale lockdown in Austria and other CEE countries even if a second wave were to materialize. The costs would simply be too high. A scenario like this cannot be repeated at will if the GDP shrinks by 5 or more percent every time. It is more likely that there will be a targeted lockdown of specific areas in order to do as little damage to the economy as possible.
Business forecasts often assume a V-shaped recession and recovery: following a rapid drop, the economy recovers from this low point rather quickly – just as was the case after the global financial crisis of 2009. A U-shaped recession is another possible scenario: a sudden slump is followed by stagnation for some time before any significant recovery takes place. More pessimistic forecasts predict a development shaped like Nike’s Swoosh logo: a valley followed by a slow increase, meaning that the economy would be struggling for longer as a result of the pandemic. An L-shaped recession would be nothing short of a disaster: such a scenario would see an economic depression including a wave of insolvencies and a soaring unemployment rate.
Economy and Politics – Inseparably Linked
The medium- and long-term impact of the coronavirus crisis on the economy naturally depends on the measures and reactions by the individual states. Schwabe considers it most likely that Covid-19 hotspots will be identified in order to take regional measures: “More restrictive measures will only be taken once this approach has failed.”
The Covid-19 crisis has also left its mark on the WU Executive Academy. All information regarding the impact on our MBA programs can be found here.