Coronavirus impact on GDP of advanced economies will be felt for years to come: Fitch

Fitch said US productive potential growth has been revised to 1.4% from 1.9%, the UK to 0.9% from 1.6% and the eurozone (weighted average of Germany, France, Italy and Spain) to 0.7% from 1.2% .

The impact of 2020 coronavirus recession on GDP will continue to be felt for years to come with GDP levels in the largest advanced economies expected to remain around 3 to 4% below their pre-virus trend path by the middle of this decade, Fitch Ratings has said in a new report.

Nurses wearing protective masks stand inside a temporary facility created to facilitate cancer patients diagnosed with coronavirus disease (Covid-19) in Mumbai. (Reuters Photo)

“There will be lasting damage to supply-side productive potential from the coronavirus shock as long-term unemployment rises, working hours fall, and investment and capital accumulation slow,” said Maxime Darmet, Director in Fitch’s Economics team.

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Huge uncertainties surround the economic outlook in aftermath of the massive shock in H1 2020. The path that the coronavirus outbreak will take is unknown.

“Repeated waves of new infections and renewed nationwide lockdowns could see a very sluggish recovery while medical breakthroughs could result in a rapid normalisation of economic activity,” said Fitch in the report.

A reasonable base-case working assumption for the purpose of economic analysis is that the health crisis gradually eases over time, with renewed nationwide lockdowns avoided and virus containment sought through more targeted responses.

Fitch said US productive potential growth has been revised to 1.4% from 1.9%, the UK to 0.9% from 1.6% and the eurozone (weighted average of Germany, France, Italy and Spain) to 0.7% from 1.2% .

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These revisions partly reflect the expectation of a rise in long-term unemployment in aftermath of the shock.

“The jobs shock is likely to see many workers -- particularly in the most adversely affected and labour-intensive travel, tourism and leisure sectors -- struggle to find re-employment quickly, resulting in detachment from the labour market,” said Fitch.