The Wuhan coronavirus could cost the global economy in excess of $280bn and put an end to a stretch of quarterly growth going back to 2009, according to Capital Economics’ Simon MacAdam.
MacAdam, chief economist at the consultancy, said that containment measures are weighing heavily on China’s economy, as authorities have sought to limit the spread of the virus.
Since emerging, the Wuhan coronavirus has led to the deaths of more than 900 people and recently surpassed the death toll of the SARS virus during the early part of the century.
The Chinese market has also felt the impact, with the MSCI China index down by 2.37 per cent over the past month – in local currency terms – compared with a 1.97 per cent gain for the MSCI AC World benchmark.
Performance of indices over 1mth
Source: FE Analytics
MacAdam said that the consultancy has pencilled in a contraction in first-quarter GDP, implying that the annual rate will drop from 6 per cent to 3 per cent.
The coronavirus will also have an indirect regional impact as Chinese tourists stay at home while disruption to manufacturing supply will hit most emerging Asia economies.
However, countries such as India, Indonesia and the Philippines would be left “relatively unscathed”, according to MacAdam, as they are not as integrated.
Advanced economies were likely to be less affected due to small supply-chain exposures to the Chinese economy, although it may be too early to tell.
One of the great unknowns about the virus, said the economist, is when it will stop spreading.
“For now, our forecasts assume that containment measures will prove successful enough for them to be relaxed in the coming weeks,” he added.
“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.”
Nevertheless, the coronavirus is likely to bring a stretch of 43 consecutive quarters of global growth to an end.
MacAdam said: “If we’re right, then this will mean that global GDP will not grow in quarter-on-quarter terms for the first time since 2009.
“Compared to where it would have been according to our pre-virus forecast, world GDP will be $280bn lower this quarter.
“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 per cent year-on-year.
MacAdam said there was still a great amount of uncertainty around global growth, which had been impacted by last year’s US-China trade war.
Now it is likely that global economic growth will depend on the progress made in battling the spread of the coronavirus.
“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,” he said.
“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.”
MacAdam added: “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.”
George Lagarias, chief economist at Mazars (pictured), said the coronavirus is likely to have a short-term effect on the economy and markets but will not have a huge impact on trend growth.
However, he said the outbreak had come “at a particularly inopportune moment for the global economy”.
“After a year of delay in terms of recovery, in the past three months the global economy has shown signs of a pickup, mostly due to better data out of China,” said Lagarias.
“China is the world’s marginal buyer of capital goods, the sector which has been suffering the most in terms of new orders. A Chinese cyclical rebound would help the global economy get out of its rut.
He added: “However, because that rebound was cyclical – as opposed to structural – in nature, it was also fragile to events and externalities, and the coronavirus certainly seems to fit the bill.”