Long-Term Economic Impact Forecast to Be Less Than 2008 Recession

• In our base case, we assume that current social distancing efforts will begin to reduce the number of cases by the end of May and we will be able to begin lifting restrictions in June and July.
• Additional waves of the virus and social distancing measures are expected in the second half of the year, but not at current levels given the future availability of treatments.
• We anticipate waves of drug treatments for COVID-19: Gilead’s remdesivir in the summer, targeted antibodies by the end of the year, and ultimately a vaccine in 2021.
• We forecast a 2.9% contraction in U.S. GDP in 2020, but anticipate that the scope of the shutdown to disrupt the economy in the long term is likely overrated. About 70% of GDP is from businesses that are exempt from orders, and about half of the businesses that aren’t exempt can continue with remote operations. Additionally, the fiscal stimulus should prevent a collapse in demand.

In our first deep dive into the coronavirus, we discussed the potential duration and severity of impact on health and the economy at a higher level, with background on the disease characteristics as well as the burgeoning pipeline of vaccines and treatments. In this update, we dive further into the U.S.’ mitigation strategies on a monthly basis for the remainder of 2020, with updated assumptions on severity and spread, as well as how lessons from other countries can be adapted in the U.S. We also provide analysis of recent data for drug treatments and updates on the status of the most promising programs.

In our base-case scenario, we assume full implementation of aggressive social distancing measures (including closures of schools and nonessential businesses) through most of the second quarter. After that, we think these measures will recede along with the first wave of the outbreak. Secondary waves of the virus are likely in 2020, but they should be much less deadly, thanks largely to new drug treatments. The key driver of our bear-case scenario is inefficacy of new treatments. While a few countries like South Korea and Singapore appear to have brought the virus under control using aggressive but not economically destructive nonpharmaceutical methods, we believe this may be beyond the U.S.’ ability.