As China, Asia and the rest of the world are bulking up economic defences to contain the coronavirus fallout, there are growing warnings of its cascading effect in a highly-connected global economy.
The head of the International Monetary Fund has said global central banks and governments may need to unite to fight the economic fallout from the coronavirus as banks lower growth forecasts.
“There needs to be bottom-up analysis of the impact so we can then agree on synchronised, or even better, co-ordinated measures to protect the world economy from a more serious shock,” IMF managing director Kristalina Georgieva said last week.
World Bank president David Malpass has warned that the lender will need to lower some of its growth forecasts, in part due to the virus’s impact on supply chains.
Federal Reserve chairman Jerome Powell has said that whatever impact coronavirus has on the US economy will show up in the economic data soon, but it’s too uncertain to say whether it will lead to a “material” change in the outlook.
Global trade in goods will likely stay weak in coming months as disruptions from coronavirus in China hinder the movement of international commerce already slowed by tariffs and uncertainty, according to the World Trade Organisation.
The volume of world merchandise trade was down 0.2% in the third quarter last year compared with a year earlier, according to the WTO.
Economists have turned more pessimistic over the chances of a speedy recovery for China’s virus-hit economy, as evidence mounts that the disruption will be deeper and more long-lasting than first thought. S&P Global Ratings said growth this year could be as low as 5%, which would be the weakest since the early 1990s.
Nearly two decades have passed since a coronavirus known as Sars emerged in China, killing hundreds of people and sparking panic that sent a chill through the global economy. The virus now rampaging across China could be much more damaging.
China has become an indispensable part of global business since the 2003 Sars outbreak. The country accounted for roughly 4% of world GDP in 2003, but the $14tn-plus economy, second in size only to the US, now accounts for almost a third of global growth each year.
The virus may have already halved the pick-up in global growth in 2020, QNB said a recent report based on “simple scenarios and calculations”.
The COVID-19 outbreak in China has not yet been classified as an epidemic. But according to a study by the World Bank, a severe pandemic could cause economic losses equal to nearly 5% of global GDP, or more than $3tn.
Make no mistake, the virus is not the driving factor behind those losses, but it all depends on how consumers, businesses and governments respond to the outbreak.
“I actually do have belief in China’s capability to mobilise a response and they have a lot of fiscal space,” Georgieva said. “But I think we have to do what people in the rapid response services do: pray for the best, prepare for the worst.”
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