Covid-19: euro area periphery most exposed to synchronised healthcare system and GDP shock, survey says

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Italy, Greece, Portugal and Spain are among most vulnerable developed countries to the Covid-19 shock, Germany among the least, while the US and UK are more exposed through healthcare-system limitations than direct economic impact, a Scope Ratings survey says.

National vulnerabilities to the Covid-19 pandemic’s shock to healthcare systems and economies vary widely.

There are still too many uncertainties to definitively assess Covid-19’s economic impact on individual countries and the global economy, given the ongoing developments related to the spread of the virus and associated responses from private actors and governments. But we can try to detect which countries are more vulnerable to the Covid-19 pandemic’s shock from a healthcare system and economic point of view,” says Alvise Lennkh, director at Scope and co-author of the report.

Scope has compared a mix of external and internal economic indicators such as the share of GDP made up by travel and tourism, employment by micro businesses as well as critical healthcare-system parameters – hospital beds and medical staff per 1,000 inhabitants – to derive a vulnerability matrix to the Covid-19 shock.

The analysis shows that among 31 countries (EU-27, UK, US, Japan, China), the euro area periphery, including Italy (BBB+/Stable), Spain (A-/Stable), Greece (BB/Positive) and Portugal (BBB+/Stable), displays the highest vulnerabilities to the synchronised health and economic shocks. This is due to their relatively high share of micro-businesses, which have usually lower liquidity compared to larger corporates, and a large number of individuals either self-employed or employed on temporary contracts that have a higher risk of losing income, leaving them financially more exposed in times of distress.

These economies also depend on relatively high contributions from tourism and travel services, at around 17% of GDP on average, which are now the sectors most strongly hit by the simultaneous supply and demand shocks. Finally, the relative capacity of their health care systems, as captured by the number of medical staff and hospital beds per 1,000 people, is not only lower than the EU average but may also be more at risk of coming under significant strain given their relatively older populations,” says Levon Kameryan, co-author of today’s report.

“Germany and France make an interesting contrast,” says Lennkh.

Germany (AAA/Stable) has among the highest healthcare capacities in the world, and a relatively low reliance on small businesses and self-employment. But Germany’s manufacturing sector, one of the EU’s largest relative to the size of the economy (21.6%), is exposed to the international impact of the pandemic, in contrast to France (AA/Stable), where manufacturing accounts for only 11% of gross value added, and which, like Austria and Luxembourg (both AAA/Stable), benefits from a relatively high healthcare capacity.

For the US (AA/Stable) and UK (AA/Negative), the lower capacity of their healthcare systems contrasts with more resilient economies, though comparatively low contractual protection for US employees could result in high unemployment with an adverse impact on domestic consumption. The opposite appears to be the case for Ireland (A+/Positive), the Czech Republic (AA/Stable) and Slovakia (A+/Stable), which have high exposures to international value chains.

China (A+/Negative) is economically vulnerable, given a high share of self-employed in total employment, and a manufacturing sector accounting for nearly 30% of the economy, which has contracted sharply in January and February. Until China resumes full production, its economic vulnerability feeds through to other countries more dependent on trade in goods with it, such as Japan, Germany and most of the Central and Eastern European economies,” says Kameryan.

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