Tingshu Wang / Reuters
- Corona virus has so far infected 64,000 and killed 1,380. And as the health crisis worsens, it becomes increasingly clear that the outbreak will have far-reaching economic consequences.
- China's economy is expected to grow at the lowest margin since the Great Recession – news that will hit the competitive and vulnerable banking sector hard.
- The rainfall is also expected to flow into the US economy: 88% of economists forecast a quarterly growth decline of 0.5%.
- Stock markets around the world have weakened as investors responded to new daily developments in the spread of the disease.
- However, historical data from Ebola and SARS show that stocks can recover quickly after a health crisis.
- You can find more stories on the Business Insider homepage,
Wuhan coronavirus, the flu-like disease named after the Chinese province where it was first reported killed 1,380 and infected more than 64,000, Although not as deadly as global epidemics like Ebola and SARS, the coronavirus infection rate is already higher than both – together.
In the midst of health concerns, there are also economic ones. The outbreak has already slowed down in China, the world's second largest economy. And since the nation is at the center of many crucial global supply chains, the dispute has quickly spread to other regions, including the United States.
The situation has jeopardized all industries, markets and policymakers around the world to assess how much the corona virus could ultimately slow the global economy
The following describes in detail how badly experts believe that this could be the case especially for China and the United States. Given their position as dual economic superpowers in the world, negative developments could be catastrophic for the small economies that rely on them.
The worst-case scenario for China's economy
Economists predict that China's economy will slow down to growth that has not been achieved since the 2008 financial crisis, a Reuters poll said on Friday. The 40 economists surveyed said that gross domestic product will decrease to 4.5% in the first quarter, while growth could be 5.5% in 2020 as a whole, compared to 6.1% in the previous year.
Another new one Bloomberg report found that analysts are now seeing Chinese GDP at only 3.8%. This would be a particularly problematic growth rate as it is below 4.15% – a threshold that, if breached, would increase the so-called bad credit rate at China's largest banks five times over, Bloomberg notes.
In 2019, the sector had record-breaking credit losses and the first bank seizure in 20 years in 2019 – and at that point the economy was expanding at a much more robust 6%.
Some economic forecasts refer even more to the end of the world: Evercore ISI announced last week that growth of 0% is expected for this quarter. While it is unclear to what extent this figure would recover by the end of the year, this lack of growth would take into account any worst-case scenario for an economy as important as China's.
The worst case scenario for the US economy
At this point, it is clear that the fallout from the corona virus is not being curbed only in China, and Fed chairman Jerome Powell agrees. He said Tuesday that the outbreak would "very likely" affect the US economy, although he refused to speculate on how large the impact could be.
Economist lately interviewed by the Wall Street Journal were more willing to give an accurate number for the worst-case scenario for US growth. Of the 63 participants, 83% indicated that the corona virus would lead to a negative GDP hit of up to 0.5%. Another 5% said the fallout could be worse.
Large U.S. companies – including Nike, Apple and Starbucks – are already feeling the pressure. All three companies, along with many others, closed some Chinese businesses during the outbreak. This decision will have serious consequences for the next quarterly reports.
In addition, Tesla said its Gigafactory 3 plant in China had to remain closed during the outbreak, resulting in delayed deliveries of its Model 3 sedan. And Apple has released a "wider-than-usual sales margin" for its second-quarter forecast to reflect its success.
Parallels to previous pandemics
When the corona virus first appeared, Wall Street economists tried to predict whether the outbreak could be as severe as the 2003 SARS outbreak in China. But some measures made it worse.
The pace of risk – or the rate at which large risks and black swan events affect assets – is more pronounced than at SARS today, said Seema Shah, chief strategist at Principal Global Investors, in a January customer release. Globally linked supply chains, record high market prices and a social media culture that increases fear of risk have positioned the market for a sharp decline, she said.
Regardless of how deep the decline is, history shows that markets are quickly recovering from health concerns. The S&P 500 rose 14.59% after the SARS outbreak and 5.34% after Ebola MarketWatch reports citing Dow Jones market data. The MSCI World Index shows that, according to MarketWatch, which used data from Charles Schwab and Factset, the markets typically generate positive returns just one month after an outbreak.
Although it is constructive to prepare for worst-case scenarios, Goldman Sachs – one of the most influential banks in the world – says the coronavirus' economic impact will remain limited on an annual basis.
However, this doesn't mean that these effects are insignificant, said Zach Pandl, co-leader of the company's global foreign exchange and emerging market strategy. In a recent release, he said that it will take longer to fully understand the extent of the coronavirus outage, as China does not release certain key economic data until March.
His forecast: Before the corona virus is done with the economy, it will hit global growth this quarter ten times more than a US hurricane.
(tagsToTranslate) coronavirus (t) economic impact (t) global growth (t) economy (t) economy and markets (t) wuhan coronavius (t) China (t) GDP (t) GDP growth (t) US GDP (t)) Global GDP (t) health