INDEX:
- The primary impact on the Economies:
- Infinite stimulus
- Steps taken by leaders in Relation to Economic Risks
The primary impact on the Economies
Subsequent outbreaks in the other economies also have similar effects on similar scales. Prospectus of growth remain very uncertain on the assumption that epidemic peaks in China in the first quarter of 2020 and outbreaks in the other countries prove severe as of now, global growth can be lowered by around ½ percentage point during this year relative to that expected in November 2019 Economic Outlook. Thus, annual global GDP growth is expected to drop down to 2.4% in 2020 as a whole, which has already been weak 2.9% in 2019, with growth possibly being negative in the first quarter of 2020. Prospects for China have been revised with growth lowering below 5% this year before recovering to over 6% in the year 2021, as the output returns gradually to the levels projected before the outbreak. The adverse impacts on confidence, financial markets, the travel sector, and disruption to the supply chains contribute to downward revisions in all G-20 economies in the year 2020, particularly ones strongly interconnected to China, like Japan, Korea, and Australia. Provided the effects of this virus outbreak fade as per assumed, the impact on confidence and incomes of targeted policy actions in highly exposed economies could also help global GDP growth recover to 3¼ percent in the year 2021. A long-lasting and more intensive coronavirus outbreak, which has been spreading widely throughout the AsiaPacific region, North America, and Europe, would weaken prospects considerably. In this event, global growth can drop to 1½ percent in the year 2020, half the rate projected prior to this virus outbreak. Governments need to act efficiently and forcefully to overcome coronavirus outbreak and its economic impact. Governments also need to ensure the effective and well-resourced public health measures to prevent this infection and contagion, plus implement well-targeted policies to support the health care systems and workers and protect incomes of the vulnerable social groups and businesses during this virus outbreak. Supportive macroeconomic policies can also restore confidence and aid the recovery of demand as virus outbreak eases but could not offset the immediate disruptions which result from enforced shutdowns and the travel restrictions. If downside risks materialize, and the growth appears set to be weaker for an extended period, co-ordinated and multilateral actions to ensure the effective health policies, containment and the mitigation measures, support low-income economies, and collaboratively raise fiscal spending would be the most effective means of restoring confidence and supporting incomes.
This coronavirus outbreak has significantly weakened the near-term global economic prospects. Since the outbreak in January, 85,000 people have been infected around the Globe with a fast-rising share of them outside China. The epicenter of this outbreak was in Hubei province that accounts for about 4.5% of China’s output, but effects have been very apparent throughout China with efforts to control the spread of this virus, leading to wide-ranging restrictions on the passenger transportation, labor mobility and the hours worked. Available indicators for the February point to significant declines in the activity inside China and the tentative signs of a mild improvement towards the end of the month appear to be unlikely and rapid enough to prevent the levels of output in the first quarter of 2020 being lower than that in the fourth quarter of the year 2019. Production declines in China have been felt by businesses around the world, given China’s key role in the global supply chains as a producer of intermediate goods, particularly in the field of computers, pharmaceuticals, electronics, and transport equipment, and as a primary source of demand for several commodities. Temporary supply disruptions can also be met by using the inventories, but inventory levels are lean due to just-in-time manufacturing the processes, and alternative suppliers cannot easily be obtained for the specialized parts. The prolonged delay in restoring full production in the affected regions would add to weakness in the manufacturing sectors in many countries, given the time it takes to ship supplies around the world. Travel restrictions and cancellation of several planned visits, flights, business, and leisure events are affecting many service sectors, which is likely to persist for some time. Worldwide, Chinese tourists account for an approx of one-tenth of all the cross-border visitors and one quarter or more of all visitors in Korea and other smaller Asian economies. Exports of the travel services to China, including the spending by Chinese visitors, are also significant in a number of countries. The virtual cessation of the outbound tourism from China represents a size-able near term adverse demand shock. It is already apparent in many destinations like visitor arrivals in Hong Kong, China in February were 95% lower than the usual. If the spread of coronavirus outbreak affects the visitor numbers more widely across the major economies, there would be a sizeable cost, with tourism accounting directly for 4¼ percent of GDP in OECD economies and almost 7% of the employment.
Infinite stimulus
With most asset markets tanking, global central banks have been rolling out extraordinary measures on an almost daily basis to stop the rot.
In its latest drastic step, the Federal Reserve on Monday promised bottomless dollar funding.
For the first time, the Fed will back purchases of corporate bonds, backstop direct loans to companies, and “soon” will roll out a program to get credit to small and medium-sized businesses.
Steps taken by leaders in Relation to Economic Risks
The insights from the financial markets and the history of analogous shocks could be operationalized below:
- Do not become dependent on the projections. Financial markets are also currently reflecting great uncertainty. A wide range of scenarios remain very plausible and should be explored by the companies.
- Do not allow the gyrations of the financial markets to cloud judgment about any business.
- The focus should be on consumer confidence signals; one should trust the instincts, and know how to leverage the company’s data in calibrating insights.
- Companies should plan for the best and prepare for the worst trajectories keeping in mind that a V-shaped recovery is a plausible scenario conceptually and empirically.
