The global economy faces its biggest danger since the financial crisis. Containing the epidemic and protecting people is the priority. Growth was weak but stabilising until the coronavirus Covid-19 hit. The impact of the Covid-19 outbreak on economic prospects is severe.
Organization for Economic Cooperation and Development (OECD) predicts that the coronavirus will slow global economic growth to its lowest level since the financial crisis. Meanwhile, the European Union is now on high alert.
Restrictions on movement of people, goods and services, and containment measures such as factory closures have cut manufacturing and domestic demand sharply in China. The impact on the rest of the world through business travel and tourism, supply chains, commodities and lower confidence is growing.
The coronavirus (COVID-19) outbreak has already brought considerable human suffering and major economic disruption. Output contractions in China are being felt around the world, reflecting the key and rising role China has in global supply chains, travel and commodity markets. Subsequent outbreaks in other economies are having similar effects, albeit on a smaller scale.
Growth prospects remain highly uncertain.
- On the assumption that the epidemic peaks in China in the first quarter of 2020 and outbreaks in other countries prove mild and contained, global growth could be lowered by around ½ percentage point this year relative to that expected in the November 2019 Economic Outlook.
- Accordingly, annual global GDP growth is projected to drop to 2.4% in 2020 as a whole, from an already weak 2.9% in 2019, with growth possibly even being negative in the first quarter of 2020.
- Prospects for China have been revised markedly, with growth slipping below 5% this year, before recovering to over 6% in 2021, as output returns gradually to the levels projected before the Coronavirus outbreak.
- The adverse impact on confidence, financial markets, the travel sector and disruption to supply chains contributes to the downward revisions in all G20 economies in 2020, particularly ones strongly interconnected to China, such as Japan, Korea and Australia.
- Provided the effects of the virus outbreak fade as assumed, the impact on confidence and incomes of well-targeted policy actions in the most exposed economies could help global GDP growth recover to 3¼ per cent in 2021.
- A longer lasting and more intensive coronavirus outbreak, spreading widely throughout the AsiaPacific region, Europe and North America, would weaken prospects considerably. In this event, global growth could drop to 1½ per cent in 2020, half the rate projected prior to the virus outbreak.
Coronavirus ‘could cost global economy $1.1tn in lost income’
Governments need to act swiftly and forcefully to overcome the coronavirus and its economic impact.
- Governments need to ensure effective and well-resourced public health measures to prevent infection and contagion, and implement well-targeted policies to support health care systems and workers, and protect the incomes of vulnerable social groups and businesses during the virus outbreak.
- Supportive macroeconomic policies can help to restore confidence and aid the recovery of demand as virus outbreaks ease, but cannot offset the immediate disruptions that result from enforced shutdowns and travel restrictions.
- If downside risks materialise, and growth appears set to be much weaker for an extended period, co-ordinated multilateral actions to ensure effective health policies, containment and mitigation measures, support low-income economies, and jointly raise fiscal spending would be the most effective means of restoring confidence and supporting incomes.
The Coronavirus (COVID-19) outbreak has already brought considerable human suffering and major economic disruption. In China, containment efforts have involved quarantines and widespread restrictions on labour mobility and travel, resulting in unplanned delays in restarting factories after the Lunar New Year holiday and sharp cutbacks in many service sector activities. These measures imply a sizeable output contraction whilst the effects of the outbreak persist. Subsequent outbreaks in other countries, including Korea and Italy, have also prompted containment measures such as quarantines and border closures, albeit on a smaller scale.
The OECD expects the world economy to grow only 2.4 percent this year, the lowest level in more than a decade. The organization says that growth could be even lower if the virus spreads further within continents. In Asia, the OECD forecasts China, the world’s second-largest economy and epicenter of the outbreak, will be hardest hit, with just 4.9 percent growth, its lowest in 30 years.
The OECD has downgraded growth expectations for the euro-currency countries to about one percent for both this year and next – what it calls a “sub par” level.
EU Economics Commissioner Paolo Gentiloni says it is too early to measure the economic impact of the Coronavirus for the bloc overall. But he says earlier expectations for a quick recovery might be overly optimistic.
It is time today to declare that the EU is ready to use all the available policy options if and when needed, to safeguard our growth against these downside risks.
Paolo Gentiloni / EU Economics Commissioner
While EU officials promise close coordination among member states, responses so far vary widely. The hardest-hit country, Italy, for example, has adopted a more relaxed approach than in France, which has far fewer cases.
The European Commission estimates the bloc is losing about one billion dollars monthly in tourism revenue alone. It is urging member states to take measures to reduce the virus’ economic impact on businesses and people.