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24 Mar 2020 – Insights

Biggest economic shock since the Second World War

The current economic downturn is worse than the worst months of the financial crisis, and globally we are witnessing an economic shock last seen during the Second World War. But it is possible that the pain will be short-lived.

Global Head of Macro, Fixed Income and Currency Research at Danske Bank, Thomas Harr does not like what he sees. As country after country impose lock-downs, the economic costs of coronavirus COVID-19 are mounting.

“Every day, more countries and regions impose lockdowns to combat the spread of COVID-19. A quick calculation suggests that countries and regions accounting for around 25% of World GDP are facing lockdowns. It may be the biggest shock the world economy has faced since World War II.  In the Nordic countries, last week marked a historically sharp rise in unemployment at a speed much faster than during the financial crisis of 2008 and 2009”, says Thomas Harr.

The economic costs and consequences can be short-lived or long lasting. It all depends on how the virus will continue to spread and which political measures are taken against it.





“In my view, the recession is extraordinarily deep and much deeper than the worst months in the global financial crisis in 2008 and 2009. However, there is still a chance that the recession will be short-lived. To judge the length of the recession, it will be key how the virus numbers develop”, says Thomas Harr.

It may be the biggest shock the world economy has faced since World War II.  In the Nordic countries, last week marked a historically sharp rise in unemployment at a speed much faster than during the financial crisis of 2008 and 2009.

Thomas Harr

Global Head of Macro, Fixed Income and Currency Research, Danske Bank



Promising drugs tests
He also says that the depth and the length of the current crisis will depend on reactions and measures from politicians and authorities. 

“Will politicians end the lockdowns when there is stabilisation in the number of infected people, hospitalisations or mortalities? How will the economic costs of the lockdown influence the decision? To judge this, it is important to follow the testing of drugs, which could be used to treat COVID-19. There are promising test results with anti-malaria drugs and an HIV-suppressing combination. There is a fair chance that those drugs might be quickly approved for treating COVID-19”, says Thomas Harr. 

Policy response slow to catch up
But the economic policy response in Europe and the US has been slow to match the severity of the crisis, he says. 

“I have repeatedly argued that the economic policy response in Europe and the US has been inadequate during this crisis. This changed over the past week with policymakers stepping up as the recession and crisis deepened. In the US, the Federal Reserve has been very active by cutting rates, and providing liquidity facilities, and it has just announced that its bond-buying programme will be unlimited and open-ended. In Europe, the ECB has launched a crisis package that enables it to increase its bond-buying programme significantly, and it is crucial that they step up their purchases immediately, not least for the sake of Italy”, says Thomas Harr. 

Over the weekend, newswires reported that the German government is working on an extra budget of EUR150bn (4.4% of GDP), including a EUR100bn stabilisation fund, which could bail out struggling companies, he says. Newswires are also reporting that the US Congress is working on a stimulus plan of up to USD2 trillion (close to 10% of GDP). 

“These policy measures would support an economic recovery if countries were able to contain the virus outbreak”, says Thomas Harr.   
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