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EBRD makes initial Covid-19 impact assessment

Covid-19 will have a negative impact on economies across all European regions but the recovery could be robust once the outbreak is contained, according to the European Bank for Reconstruction and Development (EBRD).

The EBRD, which invests in 38 emerging economies across three continents has launched an emergency package worth an initial EUR1 billion (USD1.08 billion) to support companies suffering through the crisis.

According to the EBRD’s economists, the actual and feared impact of the coronavirus is affecting supply and demand simultaneously. The final economic impact will depend on the duration of the pandemic, as well as policy response by national authorities and governments in key export markets.

The bank said that containment efforts will lead to lower consumption of services, such as restaurants, recreation, and to some extent transportation. Household consumption will also fall, something that will be compounded by the decision to postpone major purchases.

As demand decreases, many firms will experience a sharp decrease in revenues, tightening their liquidity. Over-leveraged firms are facing an increased risk of bankruptcy.

However the banking sector could help mitigate the worst of the effects by allowing delayed payments. EBRD said this depends on the health of the banking sector, as well as the crisis measures imposed by the authorities.

Indirect effects on EBRD economies include the disruption of global supply chains, weaker foreign demand, lower oil and commodity prices and wide regional declines in tourism and travel.

The bank said that more detailed economic forecasts will be issued at the end of March.

www.ebrd.com

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