The GDP@Risk over the next five years from the coronavirus pandemic could range from an optimistic loss of $3.3 trillion (0.65 per cent of five-year GDP) under a rapid recovery scenario to $82.4 trillion (16.3 per cent) in an economic depression scenario, says the Centre for Risk Studies at the University of Cambridge Judge Business School.
Under the current mid-range consensus of economists, the GDP@Risk calculation would be $26.8 trillion or 5.3 per cent of five-year GDP, says a “COVID-19 and business risk” presentation prepared by the Centre for Risk Studies.
Under the Risk Centre’s projections, the GDP@Risk in the United States would range from $550 billion (0.4 per cent of five-year GDP) to $19.9 trillion (13.6 per cent), in the United Kingdom from $96 billion (0.46 per cent) to $3.5 trillion (16.8 per cent), and in China from $1.03 trillion (0.9 per cent) to $19.2 trillion (16.5 per cent).
The Risk Centre developed the GDP@Risk metric in recent years and has applied it to measure the potential loss from a range of events ranging from natural disaster to cyber attacks to pandemics.
“GDP@Risk was designed as a constant metric that can be used to compare and standardise different types of threat,” says Dr Andrew Coburn, Chief Scientist at the Risk Centre in Cambridge. “The new calculations on GDP@Risk from the pandemic are not forecasts, but rather are projections based on various plausible scenarios that could unfold in the next five years related to the economic impact of COVID-19.”
The four scenario levels examined for their economic impact are:
- L1: An Optimistic Recovery Path scenario in which pent-up demand fuels a rapid economic recovery with overshoot on the rebound, with short-term results better than currently expected
- L2: Consensus Economic Forecast – the mid-range of forecasts by economic experts, now calling for a slow recovery curve with some period of economic growth before the recovery process
- L3: Pessimistic Outlook of structural damage to the economy and a lengthy period of recession
- L4: Economic Depression Scenario of a long-term recession with the economy tipped into depression, with “worst-case” estimates by economists and negative assumptions such as severe second waves of infection or protectionist politics.
The Centre for Risk Studies projections are based on 2019 GDP of $69.2 trillion for the world’s 19 leading economies and a baseline GDP over the next five years of $507 trillion. The Centre for Risk Studies has made its projections available to the public at the Cambridge Business Risk Hub.