There are substantial downside risks, in particular if the easing of containment measures turns out to be premature or their impact on productive capacity is more persistent. The deteriorating economic conditions may give rise to debt sustainability concerns in the public and private sector.
Corporates, many of which were already highly leveraged before the coronavirus shock, face a three-pronged challenge of cash-flow strains, higher funding costs and supply chain disruptions. As regards national governments, the immediate response of allowing automatic stabilisers to kick in and introducing discretionary support measures was correct in the midst of a deep recession.