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.
“This scenario would put Japan and Europe in recession, and the U.S. close to zero,” Laurence Boone, the organization’s chief economist, told reporters during a conference call Monday.
She added, “This is not a worst-case scenario.” The impact could be even more dire if the outbreak spreads beyond Asia, Europe and the United States and into the southern hemisphere, she said.
Even if the outbreak is mild and mostly contained outside China — the O.E.C.D.’s expected scenario — global growth could be lowered about half a percentage point relative to previous forecasts, according to an update that 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 2020 outlook 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 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, 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.
Ms. Boone said that she welcomed expressions of resolve by central banks, but that the onus was also on governments.
For example, political leaders could provide incentives for companies to shorten work hours rather than lay people off, or delay tax payments for small businesses suffering from plunging sales. Ms. Boone said it would be “a very positive signal” if the United States and China were to drop the tariffs they had imposed as part of a trade war.
“This is not a shock that central banks alone can address,” Ms. Boone said. “It really, really needs to be accompanied by fiscal measures.”
The French finance minister, Bruno Le Maire, said on Monday that the government would “unlock whatever it takes” to help French companies. “We will show complete solidarity vis-à-vis all contractors that today are on the front line,” he said.
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 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.”
The sharp drop in stock markets last week “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.”
Ms. Boone said she was concerned that the outbreak could undermine businesses confidence and prompt companies to cut back on hiring and investment at a time when global growth was already weak.
“All in all, the global economic situation before the virus hit was not that robust,” she said.
Jack Ewing and Liz Alderman contributed reporting.
2020-03-02 10:00:00Z
https://www.nytimes.com/2020/03/02/business/economy/global-economy-coronavirus.html
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