This pandemic scenario is used to quantify the effects of a health catastrophe. The São Paulo Virus Pandemic Scenario envisions a fictional strain ‘H8N8’ of an influenza virus, which is very infectious and moderately virulent.
The illness debilitates its victims for weeks, inflicting massive damage on society, though it is only fatal in a third of a percent of infection cases. The pandemic is curtailed when a vaccine becomes available.
The virus kills 19-25 million people worldwide, in different variants of the scenario.
The world loses between $7 trillion and $17 trillion of GDP over five years, almost as severe as the Global Financial Crisis of 2007-2012. In financial markets, equities are badly hit. A typical investment portfolio suffers negative returns. Long term bond markets suffer, notably in the Eurozone and UK.
- The pandemic triggers a global recession, which bottoms out a year after the pandemic starts.
- The consequences are felt for several years afterwards, with the overall effects being measured in lost GDP output over five years (‘GDP@Risk’) of $7 trillion, ranging to $23 trillion in the more extreme variant – greater than the $20 trillion output estimated lost as a result of the Great Financial Crisis of 2007-2012.
- The pandemic-driven recession impacts different countries’ interest rates, balance of payments, credit ratings, and exchange rates.
- Market consequences include significant changes in the valuation fundamentals of equities and fixed interest bonds, with short term shocks to prices and longer term changes in interest rates and yields.
- Longer term bond yields are impacted, with some markets significantly out-performing others. Eurozone and UK geographical markets are more susceptible than US or Japan markets.
- Equities are badly hit, although winners include the healthcare, pharma, telecoms, and oil & gas sectors.