Coronavirus to end 43-quarter global growth streak - Capital Economics
Global Economics

Coronavirus to end 43-quarter global growth streak

Global Economics Update
Written by Simon Macadam

For now, our best guess is that the economic disruption related to the coronavirus will cost the world economy over $280bn in the first quarter of this year. If we’re right, then this will mean that global GDP will not grow in q/q terms for the first time since 2009. We assume the virus will be contained soon, and that lost output is made up in subsequent quarters, so that world GDP reaches the level it would have done had there been no outbreak by the middle of 2021.

  • For now, our best guess is that the economic disruption related to the coronavirus will cost the world economy over $280bn in the first quarter of this year. If we’re right, then this will mean that global GDP will not grow in q/q terms for the first time since 2009. We assume the virus will be contained soon, and that lost output is made up in subsequent quarters, so that world GDP reaches the level it would have done had there been no outbreak by the middle of 2021.
  • In recent weeks, we have published numerous reports about the economic consequences of the coronavirus outbreak across our regional, country and sector services. (See our dedicated Coronavirus Updates page on our website for links to our latest publications as well as a selection of charts tracking the latest developments, updated on a daily basis.) In this Update, we recap the costs and, with what know so far, give an initial estimate of the hit to global economic output with all the uncertainties that this entails.
  • Containment measures are weighing heavily on China’s economy. We have pencilled in a contraction in GDP in Q1, implying that its y/y growth rate – on our CAP measure of economic activity – will halve from just under 6% to around 3%. (See here.)
  • In Emerging Asia, a large drop in Chinese tourist arrivals and disruption to manufacturing supply chains will also hit most economies hard. As in China, we expect the economic fallout in Asia to be bigger than that experienced during the SARS outbreak in 2003. (See here.) However, India, Indonesia and the Philippines are less integrated with China and so are likely to get away relatively unscathed. (See Chart 1.)
  • As for advanced economies, we are forecasting Australia’s economy to contract owing to its high dependence on China for tourism receipts and goods exports. (See here.)
  • Elsewhere in DMs, supply chain exposures seem too small, at least in aggregate, for disruption in China to inflict severe economic damage. However, as we pointed out in a note earlier this week, supply chain vulnerability is difficult to judge with the available industry-level data. So, there is a significant risk that we will have to revise down some DM growth forecasts when we get start to get a sense of the economic impact.
  • The other great unknown is when the virus will stop spreading. Encouragingly, official figures show a large fall in new infections, offering a sign that containment efforts are starting to pay off. (See Chart 2.) We’ll get a clearer idea next week when more time has passed beyond the estimated incubation period. (See here.)
  • For now, our forecasts assume that containment measures will prove successful enough for them to be relaxed in the coming weeks. This would allow affected economies to bounce back as pent-up demand is released by consumers and businesses, and inventories of goods are rebuilt over the course of the year.
  • This base case implies that, having grown for 43 quarters in a row, the world economy will stall in Q1. Compared to where it would have been according to our pre-virus forecast, world GDP will be $280bn lower this quarter. (See Chart 3.) Even if our new forecasts turn out to overstate the fallout from the virus, global GDP growth is likely to drop to its slowest rate since 2009; i.e. below 2.4% y/y. (See Chart 4.)
  • Clearly, there is an unusual amount of uncertainty surrounding our latest set of GDP growth forecasts. Economic outcomes will hinge on when exactly the virus is contained; how quickly the Chinese authorities subsequently relax and ultimately remove the restrictions on travel and business; and how sensitive to supply chain disruption economies in South-East Asia, and those outside the region, turn out to be.
  • The big picture is that, assuming the economic disruption comes to an end soon, the coronavirus will probably end up just delaying the global economic recovery in 2020, rather than cancelling it altogether.

Chart 1: CE Forecasts for Em. Asia Q1 GDP
(Change in Y/Y Growth Rate, Q4 2019 to Q1 2020)

Chart 2: New Cases, Deaths & Recoveries
Relating to the Wuhan Coronavirus

Chart 3: World GDP (Int’l $, 2018 PPP, Not Annualised)

Chart 4: World GDP (% y/y)

Sources: Refinitiv, CEIC, Capital Economics


Simon MacAdam, Global Economist, +44 20 7808 4983, simon.macadam@capitaleconomics.com