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S&P Global Ratings

Tracking The Spread And Economic Impact of The Coronavirus

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Tracking The Spread And Economic Impact of The Coronavirus

This article and interactive data visualizations have been updated from March 20, 2020 to reflect the latest data of this ongoing situation.

Global recession is here and now

Since this article was last updated on March 11, events have continued to evolve rapidly. On that day, the World Health Organization declared COVID-19 to be a global pandemic and the geographic spread has continued to widen to the extent that few parts of the world are untouched (see Charts 1 and 2). The daily increase in confirmed cases outside China continues to grow rapidly. There are now six countries with more than 10,000 cases – Italy, Iran, Spain, Germany, the U.S. and France - and other countries are on trajectories likely to bring similar case counts soon. 62 countries already have in excess of 100 cases. Europe has now become the epicenter of the outbreak, with the U.S. on course to be similarly affected. If there is some good to be found, it is that the daily new case rate has fallen to near-zero in China, where the virus first took hold.

The social and economic consequences of COVID-19 have consequently become much more severe and we now forecast a global recession this year, with 2020 GDP rising just 1.0%-1.5%. Full details are set out in " Economic Research: COVID-19 Macroeconomic Update: The Global Recession Is Here And Now," published on March 17, 2020. Risks to this estimate remain firmly to the downside. Central banks have swung into action and are undertaking some combination of sharply reduced policy rates, resumed assets purchase and liquidity injections. Fiscal authorities have generally lagged but have begun to loosen the purse strings; we suspect that larger and more targeted spending to the most affected groups is forthcoming.

Chart 1: Geographic Spread And Ex-China Case Growth Rate Of COVID-19, Mar. 22, 2020

Source: John Hopkins CSSE, S&P Global Ratings.
Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

The Sudden Economic Stop Will Bring Intense Credit Pressure

Global recession, combined with the collapse in oil prices and extreme volatility in capital markets, will inevitably have severe implications for credit markets. In S&P Global Ratings' view, this will likely mean a surge in defaults, potentially reaching a double-digit speculative-grade default rate for nonfinancial corporates in the U.S. and a material increase to high single digits in Europe over the next six to 12 months. Full details are set out in " COVID-19 Credit Update: The Sudden Economic Stop Will Bring Intense Credit Pressure," published on March 17, 2020.

The collapse in many areas of global demand will stifle cash flow for many industries, placing intense pressure on working capital, cash balances, and the ability to sustain operations, with many (especially smaller) companies requiring temporary loan funding with government backing. Efforts to cut cash burn through reducing capital investment, dividends, M&A, and staffing are likely to follow, helping intensify the economic consequences of COVID-19. Volatile market conditions will hamper funding, and in some cases, industries could struggle to avoid insolvency absent government-led fiscal support.

Nevertheless, the credit impact won't be uniform. Unsurprisingly, the industries most affected by cuts in discretionary spending and containment measures are airlines, transportation, leisure and gaming, hotels and restaurants, and retail. Disruption to cross-border supply chains is another critical pressure point weighing on the creditworthiness of industrial sectors such as auto manufacturing and capital goods. Somewhat more insulated from the epidemic and market dislocation are industries such as healthcare and telecommunications.

The duration of the pandemic will have a critical effect on credit risk. Ultimately, the length of the economic fallout from the crisis will determine the credit impact across regions and asset classes. A severe but relatively short-lived economic drop (our base case) will mostly affect weaker credits or those in the most directly exposed industries. But a prolonged recession, beyond our current revised base case, could have broader implications.

The complete suite of reports published by S&P Global Ratings, assessing the potential economic and credit implications across geographies and industries, is available at "Coronavirus Impact."

Chart 2 below provides an updated and interactive view of confirmed cases globally, using data provided by the Center for Systems Science and Engineering at John Hopkins University. It also provides an estimated reduction in 2020 GDP growth relative to S&P Global Ratings's previous baseline forecast for countries more exposed to the economic and confidence shock resulting from the outbreak. Chart 3 provides a breakdown of confirmed cases in the U.S. by state, from the same source.

Chart 2: Geographic Distribution of Confirmed Coronavirus COVID-19 Cases, Mar. 22, 2020

Source: John Hopkins CSSE, S&P Global Ratings. Note that French Guiana in South America is mapped as part of France.
Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 3: State Distribution of Confirmed U.S. Coronavirus COVID-19 Cases, Mar. 22, 2020

Source: John Hopkins CSSE, S&P Global Ratings.
Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

This report does not constitute a ratings action.