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COVID-19 economic update – April 15, 2020


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Our Economics department keeps track of all the important developments in the financial markets in both advanced economies and emerging markets. We are publishing periodic briefings with analytical assessments of the current macroeconomic and financial market situation. Find out more about the EIB Group's response to the crisis


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World trade is projected to weaken substantially. The World Trade Organization (WTO) is predicting a severe decline in international trade (very likely to exceed the slump observed during the global financial crisis), forecasting a contraction between 13% and 32% this year, depending on the health scenario (on morbidity and mortality) and related lockdown. The more pessimistic scenario would amount to a decline in global trade similar to the Great Depression, but materialising over a shorter period. Trade frictions will be more relevant and global value chains will be affected: cost of transporting goods are expected to increase because of increased border controls; meanwhile, the cost of trading services have increased because of severe travel restrictions.

Unemployment and government deficits are expected to soar substantially. The IMF also projects (under its baseline scenario) that the unemployment will go up 10.4% in the euro area in 2020, with peaks exceeding 20% in Spain and Greece and over 10% in France, Italy, Ireland, Portugal, Romania, Croatia and Sweden. The Fund is also provisionally forecasting that global public deficits will soar from 3.7% of GDP in 2019 to 9.9% of GDP this year, exceeding levels observed during the 2008-09 financial crisis. In the US, the general government deficit is projected at 15.4% of GDP in 2020, while in the EU deficits of above 9% are projected in Spain (9.5%), France (9.2%), followed by Greece (9.0%) and Belgium (8.9%), Romania (8.9%), Italy (8.3%), Estonia (8.3%). Public deficits are going to increase substantially also in emerging market and developing economies and will reach over 10% in China, Lebanon, Montenegro, Saudi Arabia, South Africa and UAE. The contraction in growth and the concomitant increase in public spending will push government debt up: at the global level, general government debt is projected to increase from an average of 83.3% of GDP last year to 96.4% in 2020, according to the IMF3.


1. See Baseline Assumptions, IMF, WEO, April 2020, pp.4-5.

2. See Scenario Box. Alternative Evolutions in the Fight against COVID-19, IMF, WEO, April 2020.

3. See Table 1.2. General Government Debt, 2012-20 for more details and methodology.


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Overall, we find that between 19% and 26% of EU non-financial corporations could face liquidity needs after a month of financial distress under the two alternative policy scenarios10. The proportion would reach 51% to 58% after three months. Trade and transportation, manufacturing (in particular production of chemicals, rubber and plastic, and  transport equipment) and accommodation and food services would be the sectors most hit, while utilities, health, business activities, and IT would be more resilient.

At the level of the EU economy, the associated liquidity needs would range from EUR 16bn to 55bn after a month and EUR 112bn to 339bn after three. Those estimated needs look contained as a proportion of GDP. Following the crisis, corporate bankruptcies will inexorably rise. However, it is essential to circumvent bankruptcies due to short-term liquidity needs of corporates that have sound business prospects in normal times. This is key to maintain the productive capacity of the EU economy and therefore its post-crisis rebound. For this reason, in the European Union and the vast majority of its economies, specific policies have been developed to alleviate cash outflows and ensure that short-term credits continue flowing to companies during the economic freeze.


4. Many EU countries took measures to adapt insolvency law, such as the COVID-19 Bill adopted in Germany that includes a temporary suspension of both, the debtor’s statutory obligation to file for insolvency and the creditor’s right to request the opening of insolvency proceedings for insolvency reasons that occurred after 1 March 2020.

5. Equity products and grants (and perhaps even debt relief instruments) would not have the same pitfalls.

6. The sample is representative across all size groups and consists of 72% micro, 22% small, 5% medium and 1% large firms.

7. The ORBIS database is known to provide an imperfect sample of the EU economy, being biased towards manufacturing and with some economies, such as Germany, being under covered. At the same time, ORBIS is recognised to be the best existing covering source for EU non-financial corporate sector. It is widely used in empirical and academic studies.

8. Monthly expenses are derived from annualised balance sheet and income statements. They are obtained by dividing by 12 the annual expenses. Cash positions relate to 2017, the latest available information with good data coverage.

9. Other operating expenses comprise leasing, rent, marketing, accounting, administrative expenses, maintenance of machinery and all the services such as electricity, phone, insurance, that do not adjust much with activity in the short run.

10. Alternatively, by considering value added instead of number of firms, the proportion of firms facing liquidity shortage would range between 21% and 29% at the end of the first month and between 60% to 70% at the end of third month.


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In addition, most EU national governments are providing state guarantees to bank loans, mainly targeting SMEs. In some countries, these guarantees amount to more than 20% of GDP and more than half of the existing stock of loans to non-financial corporations (Figure 4)

To free capacity to allow the banking sector to continue to lend, supervisors and regulators have introduced numerous measures: allowing a more flexible use of existing capital and liquidity buffers; imposing a general freeze in dividend payments and shares buy-backs. In addition, in the context of widespread loan payment deferrals, they have adjusted supervision approach for delayed loans classification, limiting pro-cyclical assumptions in loan loans provisioning.

Non-performing loans might increase at a faster pace than in past crisis episodes, despite the payment deferrals put in place in most EU countries. Prior to the COVID-19 shock, non-performing loan (NPL) ratios were on a downward trend in most countries (3.2% of total loans in the Euro area). However, they are now likely to increase,possibly faster than in the past two recessions as the expected fall in GDP is going to be much bigger and broad-based with households, micro, small and medium enterprises (and corporates of several economic sectors affected simultaneously. NPLs tend to lag GDP growth by 12-18 months, but this time the reaction function could be steeper as entire economies across Europe (and the world) come to an (almost) sudden stop. This increase will be somewhat limited by the loan payment deferrals and could potentially be reversed if GDP growth recovers in 2021. This seems the most likely scenario if containment measures are effective at eventually halting the virus spread and policy support measures are swiftly implemented to mitigate the economic fallout.


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The European Union must generate more innovation leaders and give incentives to those leading companies to reinvent themselves, pushing technological and digital frontiers continuously. Substantial barriers to investment for new innovative market entrants may cause a systemic innovation deficit for Europe, especially in the fast-growing technological and digital sectors. This suggests that policymakers should prioritise measures that remove disincentives to grow into sufficient size and reduce market fragmentation – particularly in the service sector, where the European Union is still far from being a single market. This also calls for improvements to the functioning of product and labour markets and the implementation of the digital single market.


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The COVID-19 crisis is leading to lower energy demand, which in turn reduces global greenhouse gas emissions. However, this is a temporary phenomenon.  The measures taken by European countries to slow the spread of the virus lead to an estimated 60% drop in daily carbon emissions. However, emission reductions caused by economic downturns are temporary — and typically lead to emissions growth as economies resume growth. For example, after the global financial crisis of 2008, global carbon emissions grew by 5.9% in 2010, more than offsetting the 1.4% decrease in 2009. To that end, governments should avoid trading-off between one global health crisis and another one— namely air pollution. A stimulus package that includes ramping up fossil fuel production or use would do exactly this.

Allocating resources in carbon-emitting activities in a low price environment of energy commodity and carbon prices will undoubtedly undermine any future mitigation effort. Oil demand dropped sharply as a result of disrupted business activity globally, which, coupled with still-elevated oil production levels, led oil prices to collapse. Similarly, gas prices were already at low levels before the start of the COVID-19 crisis, due to global oversupply. The price of carbon is also sinking, reaching the lowest level (16€/tCO2) since November 2018 (Figure 7). While the CO2 price will hardly recover in 2020, the uncertainty and instability of the system may undermine the plans to phase-out coal production, which is gaining momentum. The falling carbon prices combined with swings in global commodity prices, on the one hand, could increase the final energy consumption of fossil fuels, and as a consequence GHG emissions would increase, too. One the other hand, coal generators could return to profitability, slowing the transition to low-carbon technologies and  changing the landscape of power markets considerably.


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The negative effect of low fossil fuel prices could be further magnified over the short and medium-term, when considering the uncertainty that the clean-energy projects under development are facing   over construction schedules, equipment, labour and delivery windows. To cope with these uncertainties, the majority of EU countries are stretching auction and tender timelines and suspending penalties for delayed projects. France has delayed its complex array of solar tenders by an average of two months. Ireland was due to close qualification for the first round of its new Renewable Electricity Support Scheme (RESS) auctions at the beginning of April. It extended the closing date to the end of April. Germany announced that auction rounds (in 2020, 2.9 gigawatts of onshore wind capacity and 1.4 gigawatts of solar) would occur as scheduled, but it would delay the announcement of the initial award decision online to unofficially push back the deadline. Portugal postponed 700MW due to a mix of factors, including pandemic. Only a few countries, including the Netherlands and Spain, are planning to go ahead with their originally scheduled auctions for the moment. It remains to be seen whether these cancellations are temporary or permanent. The outcome depends on the economic recovery – the sooner it starts, the better would be for clean energy investments.

Climate must be part of the European Union’s long-term coronavirus recovery plans. A major challenge for the EU climate change policies in the aftermath of COVID-19 is to ensure that the pipeline of clean-energy projects is delayed rather than cancelled. Furthermore, the implementation of new regulatory frameworks driven by more ambitious climate targets will potentially create distributional effects across EU countries and the different segments of the society, making it more challenging to achieve a socially fair energy transition. The economic packages aimed at mitigating the impact of the COVID-19 crisis should also embody green stimulus elements. These stimulus packages offer an excellent opportunity to guarantee that the essential task of building a secure and sustainable energy future does not get lost amid the current, acute priorities. The transformation of the energy infrastructure will make a lasting difference to our future.