Consequences of coronavirus for world economy

Economy Materials 2 March 2020 22:41 (UTC +04:00)
Consequences of coronavirus for world economy

BAKU, Azerbaijan, March 2

By Leman Zeynalova - Trend:

In light of the accelerating spread of the coronavirus – and the economic disruption that is likely to follow – the UK-based Capital Economics research and consulting company is pulling down its GDP growth forecasts for Q1 and Q2 of this year, Trend reports.

Growth is likely to rebound over the second half of the year, but most economies will experience some permanent loss of output, according to the company’s report.

“There are five things to think about: disruption caused by containment measures imposed by governments; the response of individuals (particularly with respect to self-isolation); dislocation in financial markets; spill-overs from virus-related downturns in trading partners; and the response by policymakers.”

Capital Economics had already changed its global forecasts to account for the impact of the virus on China’s economy and the associated hit to economies in Asia. “Based on this, we pulled our forecast for global GDP growth in 2020 down to 2.4 percent (from 2.9 percent).”

“We are now pulling our forecast for global growth down further. On the basis of the assumptions noted earlier, we now expect global growth to fall to around 2 percent this year. This would be the weakest pace of annual growth since the height of the global financial crisis in 2009. But the risks to the forecast are probably still skewed to the downside. In the (admittedly unlikely) scenario that the governments of other countries imposed the same draconian containment measures that China imposed, global GDP could contract by 0.5 percent.”

The policy response is complicated by the fact that the economic shock caused by the virus affects both the supply- and the demand-side of the economy, according to the company.

“There’s not much that monetary or fiscal policy stimulus can do to address the former. And it’s doubtful that it can do much to support demand in the very short term either, given the time it takes for looser policy to filter through to the real economy.”