The outbreak of coronavirus will have a larger negative effect on the global economy than the SARS (Severe Acute Respiratory Syndrome) outbreak in 2003, according to a recent report. The Organization for Economic Cooperation and Development (OECD) on Monday, in a special report on the impact of the coronavirus, said that the global economy may shrink this quarter due to the spreading of new virus.
The agency said that the impact of the COVID-19 will have a larger economic impact than past outbreaks because "the global economy has become more integrated, and China plays a far greater role in global output, trade, tourism and commodity markets." China was the sixth largest economy, constituting only 4.2 per cent of world GDP, at the time of SARS. Today China is the world's second largest economy, accounting for more than 16 per cent of global GDP.
The halt in production in China is hitting not only Asia particularly hard, but also companies around the world that depend on its goods, said OECD, adding that governments need to act fast to prevent contagion and restore consumer confidence.
The Paris-based OECD has cut the global GDP growth by 0.5 per cent to 2.4 per cent for FY20, with warning that the figure could go as low as 1.5 per cent if the virus lasts long and spreads widely. This would be the first incident in more than a decade when world economy has declined due to a virus outbreak. The last time world GDP shrank on a quarter-on-quarter basis was at the end of 2008, during the international financial crisis. On a full-year basis, it last shrank in 2009.
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Earlier today, Fitch Solutions lowered its 2019-2020 (FY20) GDP growth forecast for India to 4.9 per cent, citing weak domestic demand and supply chain disruptions due to the coronavirus outbreak which may impact manufacturing.
The global rating agency warned that India's export manufacturing sector may be impacted by disruption in the automotive and electronics supply chain from the ongoing COVID-19 outbreak, which took the death toll in China to 2,912, and more than 3,000 worldwide.
Last week, economists at SBI Research had also revised downward the global economic outlook in wake of the spread of COVID-19 virus. The outbreak of the virus in South Korea and in Italy is expected to cause a growth erosion of 100 basis points (bps) in China alone, they had said.
"The estimates can vary but the ripple effect will be felt on global demand which will include disruption in production, disruption in raw material inputs, etc," latest SBI Ecowrap report said.
Globally, in the third quarter of 2019, growth across emerging market economies was also weaker, largely due to country-specific shocks weighing on domestic demand. Developed economies also slowed broadly.