Economic Group Warns That Virus Could Significantly Slow Global Growth
A major multinational economic group cut its outlook for 2020 as coronavirus cases show up around the globe, suggesting that global growth could be cut in half if infections spread widely outside of China.
The Organization for Economic Cooperation and Development said that if the outbreak sweeps through the Asia-Pacific region, Europe and North America, global growth could fall to just 1.5 percent in 2020, far less than the 3 percent it projected before the virus surfaced.
Even if the outbreak is mild and mostly contained outside of China — the O.E.C.D.’s expected scenario — global growth could be lowered by around half a percentage point relative to previous forecasts, according to an update the group released on Monday ominously titled, “Coronavirus: The World Economy at Risk.”
The spread of the coronavirus outside China has sent markets reeling as investors anticipate painful economic fallout. Economists across Wall Street revised their outlook for 2020 downward, with some predicting a global recession if things get bad enough.
Analysts from the O.E.C.D., a forum of 36 countries meant to foster cooperation and trade, stopped short of forecasting an all-out global downturn. But they said that if its more adverse scenario is realized, it “could push several economies into recession, including Japan and the euro area.”
The economic risks posed by the coronavirus are unpredictable. It is unclear how far and fast infections will spread, so it is also hard to guess the economic fallout from such actions as widespread quarantines and supply chain disruptions. Outbreaks in China, Japan, Iran, Italy and South Korea have already closed many factories and slowed or halted tourism. Even in the United States, which has had few cases, major companies like Twitter and Amazon have told their employees to avoid nonessential travel.
Central banks have signaled that they stand ready to act, and investors have begun looking to the Federal Reserve and its global counterparts for relief. The Fed chair, Jerome H. Powell, released a statement on Friday pledging that the central bank would “act as appropriate” to protect growth.
Even under the O.E.C.D.’s main scenario, in which the virus is quickly contained, its economists anticipate that China’s central bank and many of its global counterparts would lower interest rates by a quarter percentage point or more.
That said, the report went on, “There is limited need for further reductions in policy interest rates in the United States unless the risks of a sharper growth slowdown rise.”
Should the virus spread more widely, countries that have room to cut rates are likely to lower them by 1 percentage point on average in 2020, according to the report. But central banks in South Korea, the United Kingdom, and Australia all have limited room to lower borrowing costs, which are already low, and would hit zero in the report’s scenario.
“The increasing constraints on monetary policy suggest that a swift and sizable discretionary fiscal response would be needed in event of a scenario of this type occurring,” the O.E.C.D. said. “This reinforces the need for stronger global policy cooperation.”
Last week’s sharp drop in stock markets “adds to the persisting financial vulnerabilities from the tensions between slower growth, high corporate debt and deteriorating credit quality, including in China,” the report said. “These developments raise the risk of significant corporate stress if risk aversion intensifies from already high levels.”
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