Opinion

5 factors that will determine the economic impact of coronavirus

Global economy straining under the efforts to contain coronavirus

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Principal Economist Peter Martin’s 2000-word report “Global spread of Covid-19 derailing the world economy” examines the impact of coronavirus on the world economy. Get the highlights of Peter’s research below or purchase the full report in store for a more in-depth discussion.

What’s good for public health is bad for economics

Strategies to contain the spread of coronavirus have a negative economic impact. Stock markets and commodity prices are reeling on concerns of a recession. Global GDP growth will fall below the 2.3% we had expected for 2020. The question is, how bad could it get?

China’s sudden halting of the mass movement of people will have a severe economic impact in the short term. But its stringent containment policies may shorten the duration of the outbreak, leading to a sharper recovery. Looking beyond China, how could coronavirus affect other key economies?

Trade and tourism channels will propagate economic effects from China to the global economy. But the worst economic effects will be caused by containment measures in directly affected countries. Confirmed cases of coronavirus are rising, 110,000 globally with 110 countries reporting cases at the time of writing (10 March).

Economic outlooks are being slashed. Gauging the economic destruction is challenging given the highly uncertain and dynamic nature of this public health crisis. How bad the economic damage will rest on the extent of the global spread and duration of the disruption.

Five key factors will determine the scale of the economic impact:

  1. Number of coronavirus cases
  2. Service sector share of GDP
  3. Labour intensity of industry
  4. Exposure to China
  5. Type of exports

Peter explains these five factors and the ways in which they interact in more detail in the report.

And one key factor will determine the speed of recovery – economic policy

In China, policy stimulus has been modest, so far avoiding a departure from the more prudent fiscal approach taken by the government in recent years. Additional fiscal stimulus must be weighed against debt sustainability. Developed economies lack the policy wiggle room. Interest rates are already low and governments highly indebted. In Europe, funds that do become available will be focussed on the medical emergency and safety nets for households and businesses.

Using the latest data and information on the spread of coronavirus, we are assessing the potential economic impact. Wood Mackenzie clients will receive our Q2 2020 global macroeconomic forecasts next month. Find out how to subscribe. 

Visit our Coronavirus Guide for all the latest content on the impact of coronavirus on the energy industry. Check in regularly for our latest views and our assessments of breaking news stories and of the longer-term trends behind the headlines.

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Global spread of Covid-19 derailing the world economy

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