Economic Harm from Virus: 0.4% Off World GDP

IHS Markit predicts that a prolonged problem will extend far beyond China.

So how bad will the coronavirus get for the world’s economy? The contagion will chop anywhere from 0.4% to just 0.1% off the global gross domestic product.

That’s the take of IHS Markit, which first focused on what the virus’ immediate impact would be on China, the disease’s epicenter, and then extended that internationally. The earth’s gross domestic product, around $87 trillion in 2019, should grow by 3.3% this year, according to the International Monetary Fund.

As of Thursday, coronavirus had killed 563 people and infected 28,000. The previous virus epidemic in China, SARS in 2003, resulted in 774 deaths and 8,100 infections.

The human tragedy aside, the 2020 infection likely will have a big effect on China’s economic growth, and hence the rest of the world’s. When SARS struck, China made up 4.2% of world GDP and today that has grown to 16.3%, IHS Markit noted. “Therefore, any slowdown in the Chinese economy sends not ripples but waves across the globe,” the research firm’s study stated.  

In IHS’s most optimistic scenario, if the Chinese government’s efforts to contain the virus are lifted in February, then the reduction in the world GDP would amount to only 0.1%. But if the measures to fight the epidemic, which include confining people to cities where it is rife, last longer, then the planet’s GDP suffers more. Should the containment strategies last until March, then global GDP would lose 0.4%.

For example, China’s auto industry is concentrated around Wuhan, where the outbreak began. “If the situation lingers into mid-March, and plants in adjacent provinces are also idled,” the IHS report read, “the China-wide supply chain disruption caused by parts shortages from Hubei, a major component hub, could have a wide-reaching impact.”

One mitigating factor, IHS observed, is that this time of year is not a busy stretch in China’s industrial sector.

Once the restrictions are suspended, IHS predicted a bounce back, with 0.4% tacked onto worldwide GDP in 2021.

Related Stories:

Chinese Virus Could Be a ‘Black Swan Like No Other’: Moody’s

Virus Outbreaks Harm Stocks, Just Not on Tuesday

Scary Diseases and Health Innovations Catching the Attention of Long-term Investors

Tags: , , , ,