Coronavirus outbreak may trigger $1.3 trillion losses

Coronavirus outbreak in China to hit global economy hard.
Hit by the outbreak, the Chinese economy may expand 5.4%, down from earlier forecast of 6%.

The coronavirus outbreak in China will knock off 0.2% from global economic growth in 2020, says leading economic forecaster Oxford Economics. If the outbreak becomes a global pandemic, the GDP will fall by $1,1 trillion, or 1.3% of the current estimates, it says.

The spread of the deadly virus hit Chinese economy hard in the near term, disrupting the global economy, the forecaster said. The global GDP growth will strengthen in the second half of the year, with the Chinese companies making up for the lost output. However, the global GDP growth is likely to be 2.3%, the weakest since 2009.

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The world economy was recovering from a slowdown when the virus outbreak was detected in Wuhan, the capital of Hubei province of China. China has been the most important growth driver for the global economy and outbreak dashed the optimism among global nations.

Hit by the outbreak, the Chinese economy is likely to grow 3.8% in the first quarter of the year ending March. Oxford Economics has scaled down China’s growth projection for the entire year to 5.4% from the earlier estimate of 6%. The forecaster expects the economy to rebound in the second and third quarters of the year.

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The world economy will face a disruption caused by weaker Chinese imports and tourism. The impact will be stronger in the rest of the Asia Pacific. The China shock will also hit the US and Eurozone economies in the March quarter. The impact of the outbreak will be pronounced because globalisation has forced companies around the world to build supply chains across national borders, making the individual economies more interconnected.

The impact of the virus outbreak will hit global oil demand with Oxford Economics lowering the Brent Crude demand forecast for 2020 by 0.2 million barrels per day to 0.9 mb/d. It expects Brent crude to average $62.4pb during the year from the earlier estimate of $65.

Some other forecasts are painting a grimmer picture, A World Bank study says a global pandemic could result in losses equivalent to around 5% of world GDP or about $3 trillion. The virus itself cannot cause these losses, but it’s accentuated by the change in the behaviour of consumers, businesses and governments after the outbreak.

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