Deep Impact: A Scenario Analysis of the Covid-19 Crisis in Belgium

The sanitary measures adopted on a global scale to contain the Covid-19 pandemic have inflicted a shock never seen before on the Belgian economy, be it in terms of depth or suddenness. Because usual forecasting tools cannot be relied upon in such unique circumstances, forecasters had to turn to scenario analysis and model simulations to get a sense of the macroeconomic impact of the shock. This note discusses the outcome of a scenario prepared by staff from the National Bank of Belgium and the Federal Planning Bureau. Considering a 7-week lockdown followed by a recovery spreading until mid-2021, real GDP is expected to contract by 8 percentage points in 2020, with a strong rebound envisaged in 2021. The scenario is premised on the absence of any significant damage to the productive potential of the economy and on a swift pickup of private consumption from the second half of 2020, reflecting effective protection of disposable income and the unwinding of pent-up demand. On the production side, liquidity stress is considerable but deemed manageable so that solvency is largely preserved. Thus, mass bankruptcies and persistent job losses are not part of the scenario. The expected effect on public finances is commensurate to the shock with a deficit of at least 7,5 percent of GDP and public debt around 115 percent at end-2020.