Coronavirus ‘could trigger damage on scale of 2008 financial crisis’

The spread of the coronavirus around the world could trigger economic damage on the scale of the 2008 financial crisis, analysts have warned, amid growing concerns over the fallout from the deadly disease.

Financial markets around the world continued to tumble on Thursday as countries stepped up their efforts to contain the virus by banning travel, closing schools and postponing major sporting events and business conferences.

Standard Chartered to miss growth targets amid coronavirus fears

In a reflection of the mounting economic costs, markets across Europe sold off sharply to put stocks on course for the worst week since the depths of the eurozone debt crisis and emergency Greek bailout in mid 2011.

The FTSE 100 dropped by about 2% to below 7,000, with travel and tourism companies including British Airways and Easyjet among the hardest hit, while the price of oil tumbled to a 13-month low and City investors rushed to buy government bonds and other assets considered to be safe havens in times of financial stress.

According to research from the consultancy Capital Economics, the outbreak turning into a full-blown global pandemic with severe upheaval for world trade, markets and currency crises could be as bad as during the financial crisis, when global GDP fell by 0.5%.

Jennifer McKeown, head of the global economics service at the consultancy, said that there was still hope the outbreak could be contained with limited negative impact for businesses and countries.

What is the coronavirus and should we be worried?

It is caused by a member of the coronavirus family that has never been encountered before. Like other coronaviruses, it has come from animals. Many of those initially infected either worked or frequently shopped in the Huanan seafood wholesale market in the centre of the Chinese city.

Severe acute respiratory syndrome (Sars) and Middle Eastern respiratory syndrome (Mers) are both caused by coronaviruses that came from animals. In 2002, Sars spread virtually unchecked to 37 countries, causing global panic, infecting more than 8,000 people and killing more than 750. Mers appears to be less easily passed from human to human, but has greater lethality, killing 35% of about 2,500 people who have been infected.

The virus can cause pneumonia. Those who have fallen ill are reported to suffer coughs, fever and breathing difficulties. In severe cases there can be organ failure. As this is viral pneumonia, antibiotics are of no use. The antiviral drugs we have against flu will not work. Recovery depends on the strength of the immune system. Many of those who have died were already in poor health.

UK Chief Medical Officers are advising anyone who has travelled to the UK from mainland China, Thailand, Japan, Republic of Korea, Hong Kong, Taiwan, Singapore, Malaysia or Macau in the last 14 days and who is experiencing a cough or fever or shortness of breath to stay indoors and call NHS 111, even if symptoms are mild.

China’s national health commission has confirmed human-to-human transmission, and there have been such transmissions elsewhere.

As of 20 Februrary, China has recorded 2,118 deaths from the Covid-19 outbreak. Health officials have confirmed 74,576 cases in mainland China in total. More than 12,000 have recovered.

The coronavirus has spread to at least 28 other countries. Japan has 607 cases, including 542 from a cruise ship docked in Yokohama, and has recorded one death. There have also been deaths in Hong Kong, Taiwan, France and the Philippines.

There have been nine recorded cases and no fatalities to date in the UK. As of 17 February, a total of 4,501 people have been tested in the UK, of which 4,492 were confirmed negative.

We don’t yet know how dangerous the new coronavirus is, and we won’t know until more data comes in. The mortality rate is around 2% at the centre of the outbreak, Hubei province, and less than that elsewhere. For comparison, seasonal flu typically has a mortality rate below 1% and is thought to cause about 400,000 deaths each year globally. Sars had a death rate of more than 10%.

Another key unknown is how contagious the coronavirus is. A crucial difference is that unlike flu, there is no vaccine for the new coronavirus, which means it is more difficult for vulnerable members of the population – elderly people or those with existing respiratory or immune problems – to protect themselves. Hand-washing and avoiding other people if you feel unwell are important. One sensible step is to get the flu vaccine, which will reduce the burden on health services if the outbreak turns into a wider epidemic.

A pandemic, in WHO terms, is “the worldwide spread of a disease”. Coronavirus cases have been confirmed outside China, but by no means in all 195 countries on the WHO’s list. It is also not spreading within those countries at the moment, except in a very few cases. By far the majority of cases are travellers who picked up the virus in China.

No. The spread of the virus outside China is worrying but not an unexpected development. The WHO has declared the outbreak to be a public health emergency of international concern. The key issues are how transmissible this new coronavirus is between people, and what proportion become severely ill and end up in hospital. Often viruses that spread easily tend to have a milder impact. Generally, the coronavirus appears to be hitting older people hardest, with few cases in children.

Sarah BoseleyHannah Devlin and Martin Belam

However, she warned: “One thing becoming clear is we just can’t predict the spread of this and how bad it can be. But it’s not difficult to get to something similar to the 2008 crisis with a pandemic situation. Of course, we hope it won’t get that bad.”

The investment bank Goldman Sachs warned that US companies could record zero earnings growth this year if coronavirus becomes widespread.

Rising numbers of companies have already issued profits warnings linked to the outbreak on the back of supply shortages from manufacturers in China, where factories have been closed in an attempt to control the disease, alongside a sharp decline in consumer demand.

Major banks could come under severe pressure from companies struggling to repay loans at a time when debt levels have surged beyond the previous peak seen before the financial crisis, hitting a record level of $188tn. The International Monetary Fund has repeatedly sounded the alarm over surging global debt levels and the fragility of the financial system, particularly in China, where it warned that as much as 40% of corporate debt would be impossible to refinance in a downturn just half as bad as the 2008 crash.

Recent central bank stress tests in China indicated that as many as 17 out of 30 big banks in the country would fail if economic growth slowed to 4.15%. Growth in the world’s second biggest economy dropped to 6.1% last year, the weakest pace since 1990, as the US-China trade war hit demand for goods and services.

Capital Economics said growth in China could fall to 3% this year under the best-case scenario for the country. Should the impact for the world economy remain limited, it said global growth would slow to 2.5% this year from its previous estimate of 2.9%.

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