How Global GDP Is Still Escaping Recession in the Covid-19 Outbreak

Investors, economists and the public all have two things in common at this point: finding out how to avoid the coronavirus and trying to figure out how and when the scare will end. The stock market indexes were higher on Wednesday after China reported the fewest number of new cases since late in January. China also has pledged to support businesses that are struggling due to the impact of Covid-19 on operations by helping them identify weaknesses in their supply chains.

While many reports have had with lowered forecasts for gross domestic product (GDP) readings in China and the rest of the world, it’s still too soon to be calling for a recession. China is going to have the biggest hit, and U.S. and Western companies with large factories and a large retail presence in China already have started to admit that their prior forecasts even two or three weeks ago are not (or may not) be reliable at this point.

24/7 Wall St. has collected many outlooks from semi-government entities and independent research reports from the private sector to outline the expected impact in 2020. The reality is that GDP will take a serious hit in China and the fallout will be felt elsewhere. That is the nature of this beast in a global economy. Still, all available data is not representing a recession.

Here are the latest economic and macro views that have been issued in the past 48 hours or so.

Kristalina Georgieva of the International Monetary Fund (IMF) had a blog post on the IMF titled “Finding Solid Footing for the Global Economy” in which she outlined some risks for the global and local economies. In January, the IMF offered its outlooks for global growth to rise from 2.9% in 2019 to 3.3% in 2020 and then to 3.4% in 2021.

Georgieva’s blog post noted that the global economy is far from solid ground, with uncertainty becoming the new normal. She directly pointed out the coronavirus as the top risk at the current time, and without making formal changes, it sure sounds as if the IMF is already lowering its bias on the global growth outlook. She said:

The coronavirus is our most pressing uncertainty: a global health emergency we did not anticipate in January. It is a stark reminder of how a fragile recovery could be threatened by unforeseen events. There are a number of scenarios, depending on how quickly the spread of the virus is contained. If the disruptions from the virus end quickly, we expect the Chinese economy to bounce back soon. The result would be a sharp drop in GDP growth in China in the first quarter of 2020, but only a small reduction for the entire year. Spillovers to other countries would remain relatively minor and short-lived, mostly through temporary supply chain disruptions, tourism, and travel restrictions.

Georgieva’s post pointed to the risks in China and potentially beyond:

However, a long-lasting and more severe outbreak would result in a sharper and more protracted growth slowdown in China. Its global impact would be amplified through more substantial supply chain disruptions and a more persistent drop in investor confidence, especially if the epidemic spreads beyond China.

IHS Markit had a post from late on Tuesday indicating that the novel coronavirus outbreak is currently the most significant black swan of 2020 (at least apart from the increased tensions between the United States and Iran) that could adversely affect China’s economy and the global economy as well.

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