But the avoidance of default during the crisis does not come without the willingness to use the means available to avoid that outcome, even in very adverse situations, and the ability to endure the temporary hardship that comes with it. In addition, Iceland – like Ireland, probably – was helped by a relatively good fiscal position prior to the crisis. The fiscal consolidation that began in 2010 and has already resulted in a significant primary surplus was subsequently an important factor in restoring external confidence, which fell to what, in retrospect, seems an unjustifiably low level. In Iceland’s case, the overall effort was made easier by the outside assistance of the IMF, the Nordic countries, and Poland. The same consideration applies to the hardest-hit EU countries and should be kept in mind when assessing their probability of default. Finally, let me say a few words about credit ratings and market perceptions in the Icelandic saga, which broadly conforms to more general patterns. Both the sovereign and the private Icelandic banks were assigned triple-A ratings by Moody’s for a period prior to the crisis (the sovereign from October 2002 to May 2008 and Kaupthing Bank from February 2007 to April 2007). In the case of the banks, the stated argument was that the Government would stand behind them in times of difficulty. We now know that this was nonsense, given the size of the banks and the scale of their international activities. In case of the sovereign, this rating was not so bad after all!
In this case, we can expect that in the third and fourth quarters economic activity will be recovering quarter-on-quarter. The economic situation will be returning to normal step-by-step. The direct adverse impact of the restrictions primarily falls on this quarter, while their secondary effects will continue to manifest in the future. According to our surveys, over 80% of the businesses across various industries have been experiencing the influence of the coronavirus pandemic and current 1/3  BIS central bankers' speeches  restrictions. Companies’ business sentiment has materially declined. It will take time to restore business processes, logistics and production chains, offset the reduction in profit and revenue, build up reserves and savings that have been used to a greater or lesser extent over the second quarter. Combined with uncertainty regarding potential changes in the external environment, this will limit production, investment and consumer activity. In these conditions, GDP will shrink yearon-year in the third and fourth quarters, that is the annual rate of economic growth will be negative. According to the Bank of Russia’s forecast, GDP will overall decrease by 4–6% in 2020. The major contributor to this reduction will be a decline in exports that may reach from 10% to 15%. Moreover, fixed capital investment will also substantially decrease (by 6– 10%) compared to the previous year. Companies will be primarily using their financial resources to restore their daily operations. Uncertainty about the prospects of domestic and external demand will be confining investment plans.