Coronavirus: a worst-case scenario for the euro area

The economic impact of the coronavirus outbreak , that has taken hold since January , is already very significant, with downward revisions to growth scenarios, markets switching to recession mode and calls for economic stimulus measures. Even the 50bp cut announced by the Federal Reserve, the first between meetings since 2008, has failed to allay market jitters. According to the latest projections, the coronavirus has already knocked off between 0.5pp (according to the OECD, which now forecasts growth of 2.4% for the world economy) and 0.4pp (Natixis) global GDP, with most of the slowdown concentrated in Asia for the time being . The risks remain clearly on the downside and further adjustments are likely. The current scenarios suppose a moderate shock to GDP followed by a recovery in the second half. But what can be expected if this shock is more brutal? Based on the work of the CBO and European Commission, we assess below the impact on the Euro area from the angle of severe shocks affecting both consumption and global trade. The impact is estimat ed other things being equal and do not take into account the indirect effects (impact on confidence) or the response of economic policies. Based on our estimates, in this scenario of a sudden and temporary fall in world trade and consumption, the shock to Eurozone GDP could be near -  3% in 2020.