At a glance
We have updated our COVID-19 scenarios for the next six to 12 months. We now expect a sustained economic recovery starting the third quarter of this year and a return to "normal" social activity in the first half of 2021. Minor restrictions will likely remain in place for the remainder of 2020. In the upside scenario, we would expect a return to "normal" as early as the second half of this year. A major second wave of the coronavirus remains our main downside scenario. In this edition, we map out our upside, central, and downside scenarios and suggest three possible paths for the global economy and markets going forward.
When will the COVID-19 vaccine reach the market?
Based on the evidence we have so far, major developed economies should be able to cope with future reaccelerations of the virus without having to enter another lockdown. New hot spots of infection remain a distinct possibility, as evidenced by recent events in South Korea and China. However, the pandemic can likely be managed with a combination of testing and contact tracing measures, increased ICU capacities, and reasonably effective antiviral treatment. We believe initial supplies of at least one vaccine for COVID-19 could reach the market by the end of this year, with more widespread availability by mid-2021.
As public support for economic lockdown continues to decline, countries will likely continue to ease lockdown measures over the summer. However, softer policy restrictions, such as physical distancing guidelines and limits on public gatherings, are likely to remain in place until a vaccine becomes widely available. The same applies to limits on international travel, given that outbreaks are still prevalent in many parts of the world, including Latin America and India.
Many sources of uncertainty remain. For example, the likely size of future waves of infection is still unclear, and so is the manufacturing capacity for both antiviral treatments and vaccines. In our view, these uncertainties point to three potential scenarios.
Governments continue to support the economic recovery and asset prices via an unprecedented amount of liquidity and fiscal stimulus. This allows for risk assets to continue to perform well, despite troubling corporate fundamentals such as falling earnings and rising defaults through 2020.
Overall, we continue to see attractive risk-reward in credit and currently like US investment grade corporate bonds, US high yield credit, USD emerging market sovereign bonds, and green bonds. We expect long-term opportunities, including sustainability, to perform well in our central scenario. Furthermore, volatility remains elevated, and we recommend that investors take advantage of that situation.
Easing lockdowns: New COVID-19 scenarios
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