Issue link: https://maltatoday.uberflip.com/i/1244433
07.05.2020 3 NEWS FROM PAGE 1 In all scenarios – ranging from mild to severe – Muscat laid out the inevitable: tourism will be badly hit due to global travel bans, but retail will likely to be the first sector to rebound. "ese simulations anticipate a loss in gross value added of between 6.1% and 16.1% for 2020... the Maltese economy, as almost all economies globally, is expected to contract in 2020. Our estimates are be- tween 2.1% and 12.5% depending on the scenarios. Nevertheless, this is generally a better performance than its economic peers," Muscat said. But he anticipates the Maltese economy to go back in positive territory in 2021, "from as little as 0.2% to a bumper 10%." In the 'moderate' scenario, a 2021 recov- ery would be well below pre-COVID lev- els of expected GDP. In both the 'relapse' and 'severe' simulations, there would be no recovery from the losses of 2020. "In fact, further losses would be made," Mus- cat warns. e 'severe' scenario projects a partial lockdown all throughout 2020 but return- ing again in 2021, with travel shut down until a vaccine is made available towards end-2021, and disruptions in global sup- ply chain. Muscat's analysis suggests it will be re- tail trade that will bounce back rapidly in all scenarios but the 'severe' . "We anticipate that this sector will be able to recoup a large part of its losses in 2021, as it will quickly adapt to new health protocols that will be rolled out, and as international brands will seek not to out- price themselves from their global market share. "Telecommunications and informa- tion technology are also projected to be very quick to recover and return to their pre-COVID-19 expected trajectory." But he spelt bad news for professional services such as legal, accounting, rental, leasing and consultancy, saying firms will cut down on this sort of spending after a downturn. "Financial services are also likely to be hit by second-round effects on account of non-performing loans, higher default rates and insurance claims, and lack of investment, even though European Un- ion wide initiatives will help contain these effects. Manufacturing of non-essentials, such as clothing and electronics, could also feel such a second wave, though here the lost activity should be quite limited in absolute terms." Muscat said that even under the most optimistic scenarios in 2021 and the pan- demic defeated, the demand for travel will be lowered significantly. "In this respect, one expects resources to be further focused on niche tourism, such as culture, entertainment and event-driv- en tourism, where demand is less elastic and where value-added is higher," Muscat said of tourism prospects. "At the same time, one can anticipate that the global trend towards accom- modation-sharing, which had become a dominant part of the Maltese market, will slow down, diverting business to collec- tive accommodation (hotels) with more openly verifiable health protocols. "is will also likely make more prop- erty available in certain segments of the long-let rental market, thus dampening rent prices which were considered to have an inflationary effect over the past years." Muscat said that in all four simulations, there would be positive GDP growth in 2021. "In fact, even in the 'relapse sce- nario' , there would be a very respectable growth of 3.3% in 2021, obviously from a lower baseline. However, this would still leave the Maltese economy relatively di- vergent from the trend path that it was on pre-COVID-19." is forecast includes the impact from the government's economic stimulus package, which Muscat estimates should recoup between 0.5% and 0.75% of GDP lost in 2020. Muscat said he used an input-output framework to quantify the effects of sec- tor-specific shocks on other sectors and the overall economy, by internalising sec- toral interlinkages through demand-side and supply-side models. A traditional ag- gregate demand macro-model was used to convert results obtained by the in- put-output and fiscal frameworks on the expenditure side of the economy. Scenarios e four scenarios are based on differ- ent assumptions about the development of the five factors described earlier. e scenarios range from a best-case scenario where there is a very rapid bounce-back to previous conditions (the thinking at the start of the pandemic), to a worst-case scenario where the virulence of the pan- demic takes much longer to be restrained, impinging heavily on 2021 prospects. is best-case Mild scenario assumes that there will soon be the widespread availability of reliable anti-body testing that would reveal that a relatively large part of the population is immune to COVID-19. Moreover, tests confirm that the level of immunity is quite high and long-lasting, and a vaccine will start to be rolled-out to the public by end of this year. is implies that already in 2020, a large part of the population will be able to return to work. e travel ban would most likely continue till the start of sum- mer (twelve weeks), but as the pandemic eases, travel destinations will slowly start opening. Still, travel will remain restricted till the end of 2020, that is till the vaccine starts to be administered to the world population. Under this optimistic scenario, the peak of the pandemic in Malta is projected to occur in the third week of April, with lockdowns starting to be partially lifted by the start of May. Domestic economic activity will start to slowly return to nor- mal after around an economic lockdown of six weeks. Supply-side disruptions stemming from imports will last till the worse affected economies start opening their manufac- turing plants, which we anticipate being around ten weeks and affecting 15% of manufacturing industries. Following the worldwide roll-out of vaccines, economic activity and crucially the tourism industry is assumed to return to normal in 2021. Moderate scenario Here Muscat assumes that only a small proportion of the population will be im- mune to the infection and that the vac- cine will only become available in mid- 2021. Furthermore, the local peak in the transmission will occur in early May. is means that the current full lock- down will be partially lifted only in mid- May after eight weeks in place. e travel ban is therefore assumed to persist till mid-summer, but with partial lockdowns still in place for restaurants and accom- modation establishments (in the form of mandatory reduced capacity). is im- plies that the tourism industry will suffer throughout summer. With a fraction of the population im- mune to the COVID-19 virus, the infec- tion rate will increase again in autumn and winter (second wave of transmis- sion). However, with the health system and the population already prepared af- ter the first outbreak, the outbreak will be manageable with less stringent lock- downs (with retail outlets remaining open for instance). 2021 will economically see a weak first half with limited travel and partial lock- downs in the economy. Since the author- ities are well-prepared there will be no supply-chain restrictions on manufac- turing. e economy at large, but mainly tourism and manufacturing, will be af- fected by lower external demand as the world-wide recession extends in 2021. Relapse is Relapse scenario is based on the Moderate outlook but assumes that a further outbreak during next autumn and winter is not manageable and that lockdowns and travel bans enacted up to spring of 2021 will be similar to the ones in place at the moment. erefore, the end of 2020 and more importantly the first half of 2021 will be characterized by stringent lockdowns and travel bans, similar to the ones currently in place. Moreover, import restrictions will re-emerge. e roll-out of the vaccine in the sec- ond part of 2021 will result in a removal of lockdowns and travel bans, but foreign and domestic demand will remain sub- dued after more than a year of repeated lockdowns. Severe scenario e main assumption of this worst-case Severe simulation is that immunity guar- anteed by anti-bodies gained through infection is short-lived and unstable, im- plying that lockdowns will only be com- pletely lifted after the vaccine is rolled-out to the public. Moreover, this scenario as- sumes that the public will only be immu- nized in the fourth quarter in 2021. Mandatory quarantine will still be im- posed on foreign travellers till Q3 2020. From Q4 2020 onwards, travel will be possible but severely restricted. Lockdowns in restaurants and accom- modation outlets will be partial but will last until the third quarter of 2021. Im- port restrictions will become less severe but will affect manufacturing throughout the rest of 2020 and the first three quar- ters of 2021. External demand will severely hit for- eign oriented industries with severe sec- ond-round effects on local demand. Demand for travel will be 'significantly lower' post-Covid, Muscat warns