Which is a figure equivalent to the GDP of the UK, UK is the most extreme scenario forecasted by Bloomberg Economics.
Coronavirus spreading globally can put the world economy in a difficult situation. Bloomberg said that the economic downturn could include recession in the US, the EU and Japan, the slowest growth in China and the total loss of 2.7 trillion USD, which is equivalent to the GDP of the UK.
It is the most extreme of the four scenarios forecasted by Bloomberg Economics, based on experience in China and in other countries, estimating risks for the global supply chains and large-scale models of the global economy. With so many things left open around the trajectory of the epidemic, along with the reaction from the government and the business, forecasters cannot demand absolute accuracy.
However, these 4 scenarios provide forecasts across countries and industries and evaluate the extent of their losses.
The starting point for Bloomberg's analysis is what is happening in China, where car sales have fallen by 80%, tourist traffic has fallen by 85% from normal levels, and PMI is hitting a record low. The Chinese economy has almost completely stopped. Bloomberg Economics estimates that GDP growth in the first quarter of 2020 has dropped to 1.2% from the previous year. If China does not recover quickly in March, that forecast may still be optimistic compared to reality.
For the rest of the world, China is both an important source of supply and demand, and also the focus of the financial market: In 2019, China's imports reached 2.1 trillion USD. Sales in China are a major source of revenue for multinational companies.
Chinese tourists staying at home is causing damage to all beach resorts from South Asia to shops in Paris. China is the world's largest manufacturer of component parts. As Chinese factories shut down, parts from Apple's iPhones to construction machinery are scarcer. The impact on small businesses is huge.
China's shocks have previously spread throughout the global financial markets, including the unexpected CNY devaluation in 2015. Coronavirus is causing a similar shock, and on a larger scale, as stocks plummet around the world, striking hard on household wealth as well as business confidence.
If China can quickly control the outbreak of the epidemic and factories can resume operations in the second quarter of the year, the impact on the rest of the global economy can be prevented.
A survey of Made-in-China.com, one of the main platforms that connects Chinese suppliers and global buyers, shows that: By the end of February, 80% of manufacturing companies had resumed operation. By the end of April, general manager Li Lei said, production capacity would return to normal. If that happens, the consequences caused by a severe shock in the first half of the year will probably be dealt with.
However, workers are now returning to the factory and preparing to face another problem: The plummet of orders from abroad.
What happens if the problem gets worse? In the second scenario, the team assumes that China would take more time to return to normal, and the recovery would be illustrated in the shape a "U" graph instead of the "V” one. Even when the factory is back in operation, that doesn't mean all the issues have been resolved, said Li, the manager of Made-in-China.com. Many factories do not have enough inventory, and all supply chains’ production capacity is hindered. The team also said that South Korea, Italy, Japan, France, and Germany, which are other large economies outside China, are the countries that have seen the most cases of virus infection. According to calculations, that makes the global growth in 2020 to drop to 2.3% compared to the consensus forecast "pre-virus (before the outbreak)" is 3.1%.
In the third scenario, the team expects a more serious shock to South Korea, Italy, Japan, France and Germany, and a smaller shock for all countries that have reported any cases of the infection since the beginning of March, including the US, India, UK, Canada, and Brazil. This means that means all 10 of the world's largest economies are slowing down as they fight to prevent the spread of viruses in the country. In this scenario, global growth in 2020 will slip to 1.2%. EU and Japan will go into recession. The US growth will drop to 0.5% as the unemployment rate during the election year rises sharply.
Regarding the economic impact of the global pandemic, Bloomberg Economics assumes that all countries will have to face a severe shock equivalent to the growth slump that China is suffering from in the first quarter of the year. If that happens, global growth during the year will be zero. China's economy will grow by only 3.5%, which will have been the slowest since 1980. The global production loss will be 2.7 thousand billion USD.
The OECD has cut its global growth expectation to 2.4% from 2.9% and warned that it could even fall to 1.5%. Goldman Sachs is expected to lower its global growth forecast for the first half of this year. Recent forecasts for the first quarter GDP growth in China ranged from 5.8% to -0.5%, indicating high levels of instability.
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