GS Forecasts 2 Quarters of Negative Global Growth and Offers Insights on COVID-19's Fatality Rate
Goldman Sachs economists Jan Hatzius and Daan Struyven have updated their global economic growth forecasts, and are now projecting two consecutive negative quarters of global GDP growth followed by a sharp rebound that leaves year-on-year growth at 2%. To quote:
Our analysis shows effects on quarter-on-quarter annualized global GDP growth of -5pp in Q1 and -2pp in Q2, followed by a rebound in the second half of 2020, leaving our full-year global growth forecast at about 2%. All else equal, this would imply a short-lived global contraction that stops short of an outright recession.
It is interesting that the current fatality rate in South Korea is only 0.48% (18 deaths over 3,736 infections) where we have aggressive testing of COVID-19 (arguably the best globally) and a much better sense of the true number of infections (ie, the denominator). Yes, this is not the steady-state fatality rate, and we need more time to control for the lead-lag effects. But it is well below the global ex China rate of around 1.5%, and closer to the China ex Hubei rate (0.84%). Also interesting that SK's average age of 42yrs is materially higher than China (37), the US (38) and Australia (37). If the assessed R0 gets reduced below 2.3 as awareness spikes and human behaviours change (washing hands, not kissing cheeks, wearing more masks), communities may become more comfortable with mitigation over containment.
Goldman Sachs also interviewed Dr. Barry Bloom, the Joan L. and Julius H. Jacobson Research Professor of Public Health at the
Harvard T.H. Chan School of Public Health. He confirms what I have previously argued about the COVID-19 fatality rate, which is that the denominator is likely to be much larger than currently reported, pushing the fatality rate lower...
Allison Nathan: We keep hearing about a 2% case-fatality
rate. Is that an accurate reflection of the virus’ virulence?
Dr. Barry Bloom: The case-fatality rate estimates, or the
percent of infected people who die, doesn’t provide any
information about how lethal this virus is at this point. That’s
because those estimates basically reflect the percent of
hospitalized people who die from the disease. In the case of
SARS, this was around 10% and a relatively accurate reflection
of the disease’s virulence because virtually everybody infected
had severe symptoms. But with this virus, which can be
asymptomatic, we don’t know the total number of people
infected; so the case-fatality rate’s denominator is unknown. In
these situations, the initial case-fatality figures are almost
always frighteningly high, but then come down when the total
number of infected people becomes known. For example, rates
for H1N1 were terrifying in the beginning, at 4%, but ended up
at around 0.07%.
Dr Bloom also had some interesting remarks on the seasonal influences on the virus...
Allison Nathan: Will the onset of summer in the Northern Hemisphere help thwart the virus?
Dr. Barry Bloom: That has been the case for influenza, which
moves seasonally. And SARS wound down over the summer.
But it is not at all predictable whether this infection will be
seasonally controlled. There’s good evidence that
coronaviruses don’t do well in warm, humid weather, and that
they thrive in cold, dry weather. But is that because of the
climate, or because people are huddled closer together in the
wintertime? It’s not clear. A couple of small studies on parts of
China versus places like Hong Kong that are in a tropical belt
show no evidence that weather differences between these
regions have been a big determinant in the viral spread. But we
just don’t know.
Allison Nathan: So what do you think will most likely end this outbreak?
Dr. Barry Bloom: If the virus turns out to be seasonal, it will
decline in the summertime. And if we’re lucky, as in the case
of SARS, it will not come back again. But it could instead
become a recurring seasonal infection, like influenza, that
reappears each year; 61k people died from the flu in 2018. All
that said, we think it’s unlikely that seasonality alone will stop
this outbreak. So what we really need to do is reinforce
whatever benefits the seasonality might bring us with public
health preparedness, so that we can detect and isolate cases
while the numbers are still very small, and hopefully avoid
having to use massive mitigation strategies like closing schools
and major public events and congregations.
Chris co-founded Coolabah in 2011, which today runs $7 billion with a team of 33 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...