Global spread of coronavirus to affect economic growth significantly

The global spread of coronavirus will slow economic growth significantly amplifying the effect on several sectors. On March 6, Moody's Investor Services revised downward GDP growth forecasts for G-20 economies to 1% in 2020, from 1.7% in 2019, and for the emerging G-20 to 3.8% in 2020, from 4.2% in 2019, including a substantive slowdown in China. The ability of some companies to withstand the effects of the virus will depend on its duration.There is a higher than usual degree of uncertainty around the forecasts, admits Moody's Investor Services, since events are unfolding very rapidly on a daily basis.

Christian de Guzman, Moody's

 

Our baseline scenario assumes declining consumption levels and continuing disruptions to production and supply chains in the first half of 2020, followed by a recovery in the second half of the yea. The longer the disruptions last, the greater the risk of a global recession
—Christian de Guzman, a Moody’s Senior Vice President. 

The Risks

Significant Economic Fallout from more rapid and wider spread of the coronavirus

Dampening domestic demand in affected countries exacerbates disruptions to supply chains and cross-border trade; longer the disruptions, greater the risk of global recession

Oil price shock adds to growth and fiscal pressures for exposed sovereigns

A period of lower oil prices will further weigh on the economic and fiscal fundamentals of oil exporters, while mitigating the trade shock for importers

Policy Buffers are being tested

A number of governments and central banks have announced countervailing measures, including fiscal stimulus packages, policy rate cuts and regulatory forbearance; however, the effectiveness of policy easing will be blunted by measures to contain the outbreak, and policy space is constrained for some sovereigns

Global financial volatility heightens vulnerability risks for APAC

Tighter funding conditions and exchange rate depreciation could stress sovereigns with high foreign currency exposure, heavy reliance on external market funding or low foreign currency reserve coverage