Virus could wipe out $1 trillion from global GDP
BUT CENTRAL BANKERS SEE SCOPE FOR RAPID REBOUND
The ghastly prospect that the coronavirus outbreak could become the first truly disruptive pandemic of the globalisation era is renewing doubts over the stability of the world economy.
With the death toll approaching 3,000, over 80,000 cases officially recorded and an outbreak in Italy now shutting down the richest chunk of its economy, some economists are beginning to war game what an untethered outbreak could mean for global growth.
Those at Oxford Economics Ltd. reckon an international health crisis could be enough to wipe more than $1 trillion (Dh3.67 trillion) from global gross domestic product. That would be the economic price tag for a spike in workplace absenteeism, lower productivity, sliding travel, disrupted supply chains and reduced trade and investment.
Investors are already nervous, with US stock benchmarks slumping more than 3 per cent on Monday and the S&P 500 Index dropping the most since February 2018.
For now, central bankers and governments continue to bet that the coronavirus will not damage the world economy by much, and perhaps allow it to enjoy a rapid rebound once the illness fades. But that confidence is being tested.
While the International Monetary Fund currently reckons the virus will only force it to knock 0.1 percentage point off its 3.3 per cent global growth forecast for 2020, IMF Chief Economist Gita Gopinath said in a Yahoo Finance interview that a pandemic declaration would risk “really downside, dire scenarios.”
Deeply concerning
The head of the World Health Organisation called the new cases “deeply concerning,” but said the outbreak isn’t yet a pandemic.
Still, the protracted shutdown of Chinese factories that were supposed to be back online and the spread of the virus to South Korea, Iran and Italy’s northern industrial heartland raise the spectre of much greater death and disruption. The virus risks tipping Italy into a recession that could hurt the rest of Europe too.
South Korea’s economy is being buffered, with consumer confidence plunging the most in five years. UBS Group AG Chairman Axel Weber is already far more pessimistic than the IMF and warned global growth will experience a massive drop from 3.5 per cent to 0.5 per cent and China will shrink in the first quarter.
“The much larger downside risk is that this continues to be a problem,” the former Bundesbank president told Bloomberg Television in Riyadh, where Group of 20 finance chiefs hinted at collective worries at the dangers of the virus.
How to assess the risk is complicated by doubt over how far the coronavirus will travel.