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Economists Start to War-Game Pandemic Threat to Global Growth

Economists Start to War-Game Pandemic Threat to Global Growth

The ghastly prospect that the coronavirus outbreak could become the first truly disruptive pandemic of the globalization era is renewing doubts over the stability of the world economy.

With the death toll approaching 3,000, over 80,000 cases officially recorded and an outbreak in Italy now shutting down the richest chunk of its economy, some economists are beginning to war game what an untethered outbreak could mean for global growth.

Those at Oxford Economics Ltd. reckon an international health crisis could be enough to wipe more than $1 trillion from global gross domestic product. That would be the economic price tag for a spike in workplace absenteeism, lower productivity, sliding travel, disrupted supply chains and reduced trade and investment.

Investors are already nervous, with U.S. stock benchmarks slumping more than 3% on Monday and the S&P 500 Index dropping the most since February 2018.

For now, central bankers and governments continue to bet that the coronavirus will not damage the world economy by much, and perhaps allow it to enjoy a rapid rebound once the illness fades. But that confidence is being tested.

While the International Monetary Fund currently reckons the virus will only force it to knock 0.1 percentage point off its 3.3% global growth forecast for 2020, IMF Chief Economist Gita Gopinath said in a Yahoo Finance interview that a pandemic declaration would risk “really downside, dire scenarios.”

The head of the World Health Organization called the new cases “deeply concerning,” but said the outbreak isn’t yet a pandemic.

Still, the protracted shutdown of Chinese factories that were supposed to be back online and the spread of the virus to South Korea, Iran and Italy’s northern industrial heartland raise the specter of much greater death and disruption. The virus risks tipping Italy into a recession that could hurt the rest of Europe too.

https://www.bloomberg.com/news/articles/2020-02-25/economists-start-to-war-game-pandemic-threat-to-global-growth?srnd=economics-vp

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