Coronavirus could see global growth cut in half says OECD
Attempts are being made to stop the virus spreading
Stock markets remained volatile amid a new warning that the coronavirus could slash global economic growth by half this year.
The Organisation for Economic Cooperation and Development said many countries could plunge into recession if attempts to hold back the spread of the virus fail.
A slowdown in demand for travel and consumer spending could cause the world economy to grow by just 1.5% this year, almost half the 2.9% previously forecast.
Last week saw major stock markets suffer their worst weekly performance since the 2008 financial crisis, with $1.5 trillion being wiped off the value of global shares.
The warning led to further huge swings on the London Stock Exchange after shares opened on Monday in positive territory amid hopes of further monetary stimulus by central banks.
The FTSE 100, which soared 2.5% at the open, was down almost 1% at 6,518 by midday before recovering to trade 74.28 points higher at 6654.89 on the back of an uplift on Wall Street. US stocks soared 5%. The FTSE opened higher on Tuesday.
Investors were left looking for direction as the OECD warned that GDP growth could be as low as 1.5% in 2020 and could push several economies into recession, including Japan and the euro area.
“The overall impact on China would also intensify, reflecting the decline in key export markets and supplying economies,” it said.
If the situation improves it expects the world economy to grow by 2.4% this year, the lowest since the financial crisis in 2009, and down from a forecast of 2.9%.
Economic growth the UK’s economic growth expectations were also slashed to 0.8%, from a previous forecast of 1%.
The eurozone is also expected to grow by 0.8%, instead of 1.1%.
The Chinese economy is expected to grow by 4.9%, down from a forecast 5.7% while the US will probably remain broadly the same or just below the forcast 2%.
Deutsche expects interest rate cuts
Analysts at Deutche Bank said the economic and financial effect of the virus “will be sharply negative as fear and social distancing disrupt activity, but relatively brief in duration as those reactions subside.
“In our new central baseline forecast scenario, we see China’s GDP declining appreciably in the current quarter but beginning to recover significantly in Q2.
“This pattern will be delayed as much as several months as the virus spreads to Europe and the US. We expect US growth to drop to below zero in Q2.”
Deutsche said it expects central banks to cut interest rates, the Fed cutting rates 50 bps by the March meeting and twice more by 25 bps at subsequent meetings (for a total of 100 bps). It expects the ECB to react initially with a targeted policy.
In its central and worse case scenarios it sees the stock market falling 20% and 30% respectively from its previous peak, and bond yields remaining historically depressed for a time.