Covid-19 impact on GDP to be felt for years in advanced economies: Fitch

The impact of coronavirus will continue for years as GDP levels in the largest advanced economies remain around 3 to 4 per cent below their pre-virus trend path by the middle of this decade, Fitch Ratings has said in a new report.

"There will be lasting damage to supply-side productive potential from the coronavirus shock as long-term unemployment rises, working hours fall, and investment and capital accumulation slow," said Maxime Darmet, Director in Fitch's Economics team.

Huge uncertainties surround the economic outlook in aftermath of the massive shock in H1 2020. The path that the coronavirus outbreak will take is unknown.

"Repeated waves of new infections and renewed nationwide lockdowns could see a very sluggish recovery while medical breakthroughs could result in a rapid normalisation of economic activity," said Fitch in the report.

A reasonable base-case working assumption for the purpose of economic analysis is that the health crisis gradually eases over time, with renewed nationwide lockdowns avoided and virus containment sought through more targeted responses.

Fitch said US productive potential growth has been revised to 1.4 per cent from 1.9 per cent, the UK to 0.9 per cent from 1.6 per cent and the eurozone (weighted average of Germany, France, Italy and Spain) to 0.7 per cent from 1.2 per cent.

These revisions partly reflect the expectation of a rise in long-term unemployment in aftermath of the shock.

"The jobs shock is likely to see many workers -- particularly in the most adversely affected and labour-intensive travel, tourism and leisure sectors -- struggle to find re-employment quickly, resulting in detachment from the labour market," said Fitch.