Global growth could shrink by more than R16 trillion if coronavirus turns global pandemic

Business Insider US
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  • Oxford Economics projects the coronavirus could wipe out $1.1 trillion – the equivalent of well over R16 trillion – from their baseline worldwide gross domestic product forecast if it morphs into a global pandemic.
  • A more optimistic estimate from the firm anticipates the pandemic being contained within Asia, and global GDP falling $400 billion (R6.1 trillion) below their baseline before a sharp recovery in 2021.
  • A global pandemic would likely cause massive labor shortages, lower spending, declines in the travel and tourism industries, and technical recessions in the US and advanced European economies, the economists wrote.
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Analysts are rushing to quantify the fallout of an intensified coronavirus outbreak, and Oxford Economics believes the virus turning pandemic could wipe out $1.1 trillion – the equivalent of well over R16 trillion – from the world economy.

A spate of new coronavirus deaths in Italy, Iran, and South Korea fuelled new fears of a prolonged global outbreak on Monday. US stocks tumbled the most in two years as investors fled risk assets and piled into gold and government debt. Meanwhile, the JSE had one of its worst trading days in 20 years.

All eyes are now on the virus' death toll outside of China, a key metric for predicting the outbreak's future containment. While the rate of infection in China has slowed, new outbreaks in Asia and Europe could escalate coronavirus into a global pandemic.

Economists at Oxford Economics split their outlook toward the virus' economic fallout into two scenarios. Their baseline assumes "a large but short-lived economic impact" focused in China, before the outbreak rises to the level of a pandemic. Global gross domestic product growth would slow by 0.2% from January to February before a quick upswing.

Should coronavirus become a pandemic contained within Asia, global gross domestic product growth in 2020 will fall 0.5%, or $400 billion (R6.1 trillion), below the firm's baseline estimate, according to the note. A slowdown in world trade and consumer spending would hit most severely during the first half of the year before a sharp recovery lasts through 2021.

The projected hit to global GDP nearly triples if infection rates spike around the globe, economists Adam Slater and Neil Walker wrote. Economic growth around the world would slump to nearly zero in the first half of the year as the US and advanced European economies enter technical recessions in the first half of the year.

Full-year GDP would fall 1.3% below Oxford Economics' baseline, erasing $1.1 trillion in previously expected economic growth.

Even in the more ominous case, the global economy would exhibit a rapid recovery following the pandemic's containment, the team added. The virus would inflict "a short but very sharp shock" to world GDP, recover during the end of 2020 and into 2021, and normalise around pre-outbreak levels through the end of next year, Oxford Economics projected.

The economists looked to 2003's SARS outbreak and past swine flu epidemics to support their estimates. Oxford Economics anticipates a pandemic-level outbreak would impact economies through several channels, including discretionary spending, a shock to nations' labor supplies, plummeting tourism and travel behaviour, and lower capital investment.

Financial sectors around the world would suffer from falling equities prices and growing money market spreads, the firm added.

Coronavirus has killed more than 2,700 people and infected more than 80,000 as of Tuesday. At least 40 deaths have been reported outside of mainland China, and cases have been confirmed in at least 37 countries.

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