Economists Slash Global Growth Forecasts as Coronavirus Spreads

Neil Shearing, group chief economist at Capital Economics, wrote in a note Monday that in a good scenario, global growth will fall to 2.5 percent this year — the weakest pace since 2009. In a bad scenario, it could shrink by 0.5 percent, a contraction on scale with the financial crisis.

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 stressed that there was potential for the economic impact to become much worse and said that governments should already be pouring resources into health care and taking measures to support businesses hit by slumping sales.

“Regardless of how the virus spreads in coming days and months, we call on governments to take action now,” Ms. Boone said.

The economic risks posed by the coronavirus are unpredictable. It is unclear how far and fast infections will spread, making it hard to estimate 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.

Chinese data already suggest unexpectedly large economic costs. Two gauges of manufacturing activity slumped in February, with the Caixin manufacturing index falling to the lowest level in its history in data released Monday. Real-time trackers of Chinese activity, from coal consumption to property sales, remain severely depressed.

Central banks have signaled that they stand ready to act as the damage mounts, 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. The Bank of Japan and Bank of England issued statements of their own on Monday, signaling preparedness.

“The Fed-led pivot reflects the global spread of the virus and its economic disruptions, sharp equity market weakness and an emerging realization that corporate cash flow problems could create strains in credit markets,” Krishna Guha and Ernie Tedeschi at Evercore ISI wrote in a note following the announcements.

Article source: https://www.nytimes.com/2020/03/02/business/economy/global-economy-coronavirus.html