The latest outbreak of the coronavirus will weigh on global economic growth this year as the effects of controlling the disease spill from China into the rest of the world, Goldman Sachs has forecast.
The US bank estimates a hit of 0.1 to 0.2 percentage points to growth of global gross domestic product in 2020 under its baseline scenario, which assumes the rate of infections slows significantly in February and March thanks to an aggressive response from Chinese authorities.
Goldman said it now expects the world economy to expand by roughly 3.25 per cent this year, marking a slim pick-up from the 3.1 per cent rate recorded last year.
“The near-term impact is quite large,” Goldman’s chief economist Jan Hatzius told clients in a briefing on Monday. “What happens to 2020 as a whole really depends on how quickly the episode is brought under control.”
In its more severe scenario, in which the rate of infections does not peak until into the second quarter, Goldman thinks the hit would rise to 0.3 percentage points of GDP.
“In that case we have to probably wait until 2021 before we see an acceleration in global growth,” said Mr Hatzius.
Goldman estimates the vast majority of the damage will happen in the first quarter, with 2 percentage points shaved off global growth at an annualised rate, via a direct hit to the Chinese economy worth one percentage point, and spillover effects trimming a further percentage point.
The bank added that this would not all be made up by a subsequent recovery in the rest of the year. “Just because you missed dinner out or a haircut in the first quarter, you wouldn’t necessarily get more of those in the second quarter …there is some lost output,” said Andrew Tilton, the bank’s chief Asia economist.
Fears over the impact of the virus have rippled around the world over the past two weeks. Economists and investors have scrambled to try to price the disruption to activity and services in the world’s second-biggest economy, where parts of China are on lockdown and global supply chains have been disrupted.
The impact is already being felt globally: airlines have cancelled routes, stock markets have tumbled and some borders have closed.
The Goldman economists modelled the global impact of the disease by forecasting reduced Chinese demand for imported goods and lower spending abroad by Chinese tourists. The likely spillover looks far greater than the outbreak of severe acute respiratory syndrome, or Sars, in 2002-2003 thanks to “the enormous growth of the Chinese economy since then”, Mr Hatzius said.
Goldman estimates Chinese growth will slow to 5.5 per cent this year, and has downgraded its forecasts for Hong Kong and Thailand, which are exposed to tourism from the country. The economy expanded 6.1 per cent in 2019.
China reported more than 17,000 confirmed cases of the virus and 361 deaths as of the end of Sunday. The number of infections exceeds the total during the Sars incident, which caused months of economic turbulence in China.
Source: Economy - ft.com
