Global economic impact approaching GFC levels

With containment measures across China weighing on economic activity and other countries putting in place their own restrictions, Capital Economics believes global GDP will shrink by 1 per cent annualised through the start of 2020.


It would be the first global economic contraction since the first quarter of 2009, which was during the depths of the global financial crisis.

“The new coronavirus has reshaped the global economic outlook for at least the next couple of quarters,” they said. “From what data are available, it looks like the hit has been big enough for global GDP to contract this quarter.

“So, where the eurozone crisis, China hard-landing fears, the Fed’s botched tightening cycle and the trade war failed to bring the world economy’s growth streak to an end, the coronavirus looks set to succeed.”

Oxford Economics, in an update on the Canadian economy, said it believed the virus would cut growth there by 0.5 percentage points annualised in the March quarter and another 0.3 percentage points in the second quarter.

Both Oxford Economics and Capital Economics believe there will be an economic bounceback through the second half of 2020 if the virus is contained relatively quickly. But global growth will still be lower through the full year because of the virus.

In Australia, NAB economists on Friday morning said the virus would lead to a “major shift down” in global growth, with much of that concentrated in east Asia.

They also believe global growth in the March quarter will be its weakest since the global financial crisis. China GDP alone is tipped to be flat through the first three months after a 1.5 per cent rise in the final three months of 2019.

“This outlook is predicated on a relatively short (single quarter) disruption in activity followed by a recovery in the second quarter; a ‘best-case’ scenario,” the NAB economists said.


“However, it is highly uncertain how long the virus will continue to spread and the containment measures remain in place. Should it prove to be a prolonged period, this would add significant additional downside risk to our forecasts.”

Domestically, NAB believes the Australian economy will shrink through the March quarter due to the combined impact of the virus and the summer’s bushfires.

It expects a recovery through the second half of the year as communities rebuild fire-affected areas and the impact of the virus wanes.

The warnings on the economy come as Ira Longini, a World Health Organisation adviser who tracked studies of the virus’s transmissibility in China, suggested up to two-thirds of the world’s population could contract the virus. His estimate implies there could eventually be billions more infections than the current official tally of about 60,000.

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