JAKARTA (TheInsiderStories) – The United States (US) and Eurozone’ economies could take until 2023 to recover from the impact of the COVID-19, according to a new report from McKinsey & Co. It said, if the public health response, including social distancing and lockdown measures, is initially successful but fails to prevent a resurgence in the virus, the world will experience a “muted” economic recovery.
In this scenario, while the global economy would recover to pre-crisis levels by the third quarter of 2022, the US economy would need until the first quarter of 2023 and Europe until the third quarter of the same year, said the agency.
But, if the public health response is stronger and more successful – controlling the spread of the virus in each country within two-to-three months – the outlook could be more positive, with economic recovery by the third quarter of 2020 for the US, the fourth quarter of 2020 for China and the first quarter of 2021 for the Eurozone.
In these scenarios involving partially effective interventions, policy responses could partially offset economic damage and help to avoid a banking crisis, says McKinsey. The firm has modeled nine scenarios, ranging from rapid and effective control of the virus with highly effective policy interventions to a broad failure of public health measures and ineffective policy and economic interventions.
The economic impact in the US, however, could exceed anything experienced since the end of World War II. The industries hardest hit by COVID-19, including commercial aerospace, travel and insurance, may see a slower recovery.
Within the travel sector, the shock to immediate demand is estimated to be five-to-six times greater than following the terror attacks of Sept. 11, 2001 – though recovery may be quicker for domestic travel. The crisis has also amplified existing challenges or vulnerabilities in the aerospace and automotive industries, which will affect their recovery rates.
As supply chains around the world are disrupted, the report warns that the full impact is yet to be felt. Business leaders must prepare for the effects on production, transport and logistics, and customer demand. These include a slump in demand from consumers leading to inventory “whiplash,” as well as parts and labour shortages due to manufacturing plants shutting or reducing capacity.
Yesterday, Federal Reserve minutes from its March meetings revealed that in its worst-case scenario that the US economy would not recover from the COVID-19 damage until next year. The policymaker noted, that the COVID-19 spread had harmed communities and disrupted economic activity in many countries, including America, and that global financial conditions had also been significantly affected.
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