A global recession is likely if coronavirus becomes a pandemic, and the odds of that are uncomfortably high and rising with infections surging in Italy and Korea, Moody's Analytics said on Wednesday.
"The coronavirus has been a body blow to the Chinese economy, which now threatens to take out the entire global economy," Chief Economist at Moody's Analytics Mark Zandi said.
The outbreak of the virus, officially called COVID-19, was first detected in Wuhan in China in December and has since affected thousands of people across the globe.
"COVID-19 is battering the global economy in numerous ways. Chinese business travel and tourism has all but stopped; global airlines are not going to China and cruise lines are cancelling most Asia-Pacific itineraries. This is a huge problem for major travel destinations, including in the US, where some 3 million Chinese tourists visit each year," Moody's Analytics said.
Chinese tourists to the US are among the biggest spenders of any foreign tourists. Travel in Europe is also sure to be severely impacted as Milan, Italy, the centre of the new infections in that country, is a major travel hub for the Continent.
Shuttered Chinese factories are also a problem for countries and companies fastened into China's manufacturing supply chain. Apple, Nike and General Motors are some prominent American examples. Shortages of some goods will likely result this spring, meaning higher prices for things we buy at Walmart and on Amazon, it said.
"US exports to China will suffer given slumping Chinese demand. China is supposed to ramp up its imports of US products as part of the Phase One trade deal signed by the two countries late last year. "How much the Chinese would actually purchase from the US was already an open question. Given COVID-19, it is even more questionable. President Trump has suggested that the federal government will cut another check to hard-pressed US farmers to make up for the losses," it said.
Because China is the biggest buyer of many of the world's commodities, including oil, copper, soybeans and pork, and will be buying a lot less of these and many other things, prices are slumping. Americans will pay less at the gas pump, which is a plus, but it will be hard on the energy, mining and agricultural industries. Emerging economies, especially in Latin America and Africa, that rely on commodity production for their livelihoods will be slammed.
"Global businesses can't seem to catch a break. They have been grappling with the trade war, the Brexit transition, and the economic policy implications of the fast-approaching US presidential election," it said.
"COVID-19 is now another on this lengthening list of concerns, making it even more likely that already-cautious business executives will continue to sit on new investment and expansion plans. Moreover, they will likely be slow to ramp up their operations, fearful of the implications if they move too quickly and their workers get sick," it said.
Covid-19 may erase $1 trillion from world GDP
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.
Oxford Economics Ltd. reckons an international health crisis could be enough to wipe more than $1 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.
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% 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."
The head of the World Health Organization called the new cases "deeply concerning," but said the outbreak isn't yet a pandemic.
The virus risks tipping Italy into a recession that could hurt the rest of Europe too.
South Korea's economy is being buffeted, with consumer confidence plunging the most in five years.
Oxford Economics's tally of the impact from a global pandemic stemming from the current outbreak suggests a cost of $1.1 trillion to global GDP, with both the US and euro zone economies suffering recessions in the first half of 2020. It describes such a scenario as a "short but very sharp shock on the world economy."
Aside from containment of the disease, one mitigating factor -- and a major unknown for economists modeling the outcome -- will be the actions of central banks and governments to cushion the effects.