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Study: COVID-19 Poses as Global Economy’s Gravest Threat

Even in the best-case scenario of limited outbreaks in countries outside China, a sharp slowdown in world growth is expected in the first half of 2020 as supply chains and commodities are hit.

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The Coronavirus disease (COVID-19) is spreading from China to other regions, causing human suffering and economic disruption, raising health concerns and increasing the risk of wider restrictions on the movement of people, goods and services.

The Interim Outlook, released by the Organization for Economic Co-operation and Development (OECD), presents both a best-case scenario in which the extent of the coronavirus is broadly contained and a “domino” prospect of contagion that is more widespread. For example,

  • Severe, short-lived downturn in China, where GDP growth falls below 5% in 2020 after 6.1% in 2019, but recovering to 6.4% in 2021.
  • In Japan, Korea, Australia, growth also hit hard then gradual recovery.
  • Impact less severe in other economies, but still hit by drop in confidence and supply chain disruption.

Even in the best-case scenario of limited outbreaks in countries outside China, a sharp slowdown in world growth is expected in the first half of 2020 as supply chains and commodities are hit, tourism drops and confidence falters. Global economic growth is seen falling to 2.4% for the whole year, compared to an already weak 2.9 % in 2019. It is then expected to rise to a modest 3.3% in 2021.

Growth prospects for China have been revised down sharply to below 5% this year after 6.1% in 2019.

But, broader contagion across the wider Asia-Pacific region and advanced economies could cut global growth to as low as 1.5% this year, halving the OECD’s previous 2020 projection from last November. Containment measures and loss of confidence would hit production and spending and drive some countries into recession, including Japan and the euro area. 

“The virus risks giving a further blow to a global economy that was already weakened by trade and political tensions. Governments need to act immediately to contain the epidemic, support the health care system, protect people, shore up demand and provide a financial lifeline to households and businesses that are most affected,” says OECD chief economist Laurence Boone.

The outlook says that flexible working should be used to preserve jobs. Governments should implement temporary tax and budgetary measures to cushion the impact in sectors most affected by the downturn such as the travel, tourism, automobile and electronic industries.

In the most affected countries, adequate liquidity needs to be provided to allow banks to help companies with cash-flow problems while containment measures are in force.

If the epidemic spreads widely, the G20 economies should lead an internationally coordinated framework for healthcare support, combined with coordinated fiscal and monetary stimulus to rebuild confidence, the report adds.

 

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