Manufacturing-only recession spreads to services sector: KPMG report

March 29, 2020
New Delhi: The COVID-19 pandemic is unique in that it is a supply shock, a demand shock, and also a market shock and as production is curtailed around the world, many firms will not have necessary inputs, a new report has warned.

“A severe demand shock is also underway. The risk of a global recession in 2020 is extremely high as nations shutdown economic activity to limit the spread of COVID-19,” said the KPMG ‘COVID-19 Economic Impacts’ report.

The coronavirus has taken the world economy to a recession which will be as bad or worse than the financial meltdown of 2009, IMF chief Kristalina Georgieva has said.

“It is clear that we have entered a recession, as bad or worse than 2009,” she said in an online press briefing last week.
According to the KPMG report, the virus pandemic has disrupted manufacturing supply chains and sharply curtailed energy and commodity demand.

“What was previously a manufacturing-only recession has now spread to the services sector. We anticipate the March PMI data for both services and manufacturing to reflect growing economic stress as social distancing causes a sharp decline in demand,” said the report.

A hopeful “V” or “U” shaped recovery depends on the timing and magnitude of government assistance as well as the level of corporate debt, and how companies and markets cope with lower demand.

At present, research suggests that approximately 20 per cent of those who contract COVID-19 will need hospital treatment that is extensive.

This puts significant strain on healthcare facilities as well as on the economy, the report said.

In the US, social distancing will cause a large drop in discretionary pending, likely 30 per cent (y/y) in March, 75 per cent (y/y) in April and 45 per cent y/y in May assuming social distancing can conclude in late April or early May.

“Job losses for the most vulnerable Americans will likely also cause a decline in non-discretionary spending as well,” the findings showed, adding that federal assistance will help, but is likely to come with a lag such that a severe drop in spending is unavoidable. IANS