Coronavirus (COVID-19) Outbreak : Our Macroeconomic Analysis

COVID19 – Find here our elements of analysis as of September 25th, 2020


Almost nine months after first appearing in China, the coronavirus pandemic has still not been halted. While we now know a great deal more about the virus, many questions remain unanswered.  Unknowns revolve around the percentage of the population that is immune to COVID-19, the herd immunity threshold that must be reached to interrupt transmission chains, and for how long immunity lasts after recovery. Similarly, questions remain as to when an effective vaccine will become available and whether the colder winter months in the northern hemisphere will cause a surge in infections. Without categorical answers, it is difficult to predict the trajectory of the pandemic. Focusing on the facts to assess the direction the pandemic is taking and its implications on economic policy is therefore, we believe, imperative.

It is now obvious that as Europe emerged from lockdown, the pandemic continued to spread across several countries, spearheaded by France and Spain. The resurgence of the virus has led to a variety of restrictions being re-imposed, albeit targeted and localised. Total lockdowns have been avoided because hospitals overall are still running with spare capacity and recent mortality rates are lower than those recorded during the early months of the outbreak. On the one hand, the affected population is younger and less vulnerable and, on the other, hospitals have improved their ability to treat severely affected patients. As long as the disconnect between the number of new cases and the number of mortalities continues, and as long as the strain on the hospital system is not overwhelming, a return to widespread lockdown in Europe seems unlikely, not least given the economic and social cost that such a move would entail.

The situation beyond Europe’s borders is mixed. While the pandemic is losing steam in the United States and Latin America, it continues to propagate in Asia, and especially in India, but mortality rates, as a percentage of the population, remain moderate. There are no signs of the virus flaring up again in China, and Africa and Oceania have escaped relatively unscathed. Irrespective of these individual situations, there has been no marked or widespread tightening of restrictive measures. Indeed, some countries such as Sweden and South Korea appear to be effectively managing the pandemic with only minimal restrictions.

Given all the uncertainties surrounding the virus, there are high hopes for treatments and a vaccine. Certain drugs, in particular corticosteroids and anticoagulants, have proven their worth in limiting the risk of coronavirus-related complications. In contrast, a number of treatments aimed at slowing the ability of the virus to multiply have shown only limited efficacy. Several potential vaccines have also reached pre-marketing clinical trials and although predicting the results is impossible, as the number of potential vaccines increases, so does the probability that one of them will be licensed and brought to market, perhaps even by the end of the year. Since initial production capacity will be limited, large-scale vaccination campaigns could not feasibly be rolled out until 2021. Survey data indicate that three-quarters of the global adult population would welcome vaccination.

Our Analytical Framework

        • Monitor the number of cases and mortalities in key countries (to gauge the trajectory of the pandemic)
        • Watch hospital capacity levels in the European countries for which data is available (to identify potential vulnerabilities in the healthcare system)
        • Monitor all announced restriction and lockdown measures
        • Monitor final stage vaccine trial results

For more details, see graphs and tables in the appendix section.



As widespread total lockdown measures have ended, economies and businesses around the world have been able to recover, and probably at a much faster pace than many were expecting. Thanks to fine work by INSEE, we have an idea of how French GDP has evolved on a month-by-month basis. While in April, GDP was running 30% below normal levels, this rate had returned to 95% by August. Elsewhere, up until August at least, economic data globally were also surprisingly upbeat.

The recovery is far from uniform. Some sectors have already regained and even surpassed their high points, while others remain mired in the doldrums. Among those at a standstill and continuing to struggle are most household related services that rely on either human contact or transport. In contrast, there has been a strong and broad-based rebound in durable goods expenditure with households catching up on purchases not made during lockdown. The US residential sector also seems to be benefitting from some unexpected momentum and, following an initial collapse, capital goods orders rebounded. In addition, latest statistics confirm an ongoing recovery in China.

In the spring, we referred to a square-root shaped recovery, with an initial rapid phase followed by a more moderate one. This first phase is now over and we are entering the second.

In recent weeks, fears of a second wave of COVID-19 and new virus-related restrictions have raised fresh concerns. The latest government statements indicate reluctance to return to a blanket lockdown and the most likely solution remains the introduction of targeted measures that aim to disrupt the economy as little as possible. In France, for example, new restrictions are being accompanied by relaxed guidance for schools. Monitoring these developments is as important as ever given that, while they appear unlikely to cause any further fall in economic activity, they could slow the recovery. That said, any good news on the pandemic front could accelerate economic activity.

We expect that in Europe, GDP will have returned to 97% of its fourth-quarter 2019 level by the end of the year. While this will be a clear improvement on last spring, it is nonetheless the equivalent of the recessions seen in 1975 and 2009. The consequences in terms of bankruptcies and jobs will continue to materialise over the next few quarters. This is perfectly normal in that unemployment rates and bankruptcies often peak well after the start of the economic recovery.

The pace of growth will also depend on the extent of fiscal support. In Europe, while initially most of the measures saw losses in privately earned income replaced with public funds, the latest measures focus on boosting economic activity.

Most short-time working schemes have been extended. The major unknown is the situation in the United States. In the run-up to the election, disagreements between Democrats and Republicans have been exacerbated, making a new round of stimulus measures unlikely before voters go to the polls. As the measures to boost unemployment benefit (an additional $600 per week) expired at the end of July and funds for the Federal Lost Wages Assistance package (an additional $300 per week) will soon be exhausted, the risk for the weeks ahead is that consumer spending will lose steam. Indeed, the November presidential elections may delay voting on a new plan until early January. An overwhelming Democrat victory could pave the way for a new stimulus plan of unprecedented proportions: $2 or even $3 trillion. In this case, higher corporate and wealth taxes could be in the pipeline.

To date, the most likely scenario is that by the end of 2021, we will have returned to GDP levels that are on a par with those prevailing at the end of 2019.

For more details, see graphs and tables in the appendix section.



Equity markets have been somewhat directionless since their bull run petered out at the start of June 2020. A notable exception to this has been US technology stocks. GAFAM shares continued higher for a further three months before also consolidating. Interest rates are close to the levels that prevailed in June while credit spreads have continued their gradual decline. In short, central bank actions have prevented a market relapse. Persistently low interest rates have undoubtedly contributed to fuelling excessive market movements, as in the case of technology stocks (on 2 September, the NASDAQ was up 19.9% since the end of June and 34.5% year to date).

Central bank support will remain one of the key factors for the markets. Fed Chair Jerome Powell’s speech in Jackson Hole suggests that accommodative central bank monetary policy will continue for several years. The ECB too will probably increase the amounts involved in its securities purchasing. Such a major increase in liquidity should underpin risky assets.

In the short term, however, a number of factors could provoke a degree of volatility. The shift from an exceptional growth rate back to pre-pandemic levels may also lead to disappointment.

Brexit negotiations are nearing their conclusion and agreement still appears to be elusive. Meanwhile, the US presidential elections also have all the hallmarks of being very hard fought and could lead to a period of great political uncertainty.

Given the current financial environment, and with the exception of certain bond market segments such as high yield and subordinated financial debt, equities remain the only asset class providing attractive returns. While the risk factors mentioned previously may provoke some volatility, the prospect of fresh fiscal support measures in the United States by early 2021 along with potentially positive health-related news could put equities back on an upward trajectory.

See the P/E charts of markets and spreads in the appendix for more details.



  • The opinion expressed above is dated September 25th, 2020 and is subject to change. Most recent data at the date of publication.

This document has no pre-contractual or contractual value. It is provided to the recipient for information purposes. It contains analyses or descriptions prepared by Lazard Frères Gestion SAS on the basis of general information and historical statistical data from public sources. The opinion expressed above is current as of the date of this document and is subject to change.

These elements are provided for information purposes only and do not in any way constitute a guarantee of future performance. These analyses or descriptions may be subject to interpretation depending on the methods used.

The analyses and/or descriptions contained in this document should not be construed as advice or recommendations on the part of 25Lazard Frères Gestion SAS. This document does not constitute a recommendation to buy or sell, nor does it constitute an invitation to invest in the instruments or securities contained herein.

Any management method presented in this document does not constitute an exclusive approach and Lazard Frères Gestion SAS reserves the right to use any other method it deems appropriate. These presentations are the intellectual property of Lazard Frères Gestion SAS. LAZARD FRERES GESTION – S.A.S with a capital of 14.487.500€ – 352 213 599 RCS Paris. 25, RUE DE COURCELLES – 75008 PARIS

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