Coronavirus will hurt economic growth in many countries well into Q2, says Moody’s

1 min read

Moody’s Investors Service has revised its Global Macro Outlook and its baseline growth forecasts for all G20 economies. The coronavirus outbreak has spread rapidly outside China to a number of major economies. It now seems certain that even if the virus is steadily contained, the outbreak will dampen global economic activity well into Q2 of this year.

Moody’s has revised the baseline growth forecasts for G20 economies to 2.1%, 0.3 percentage point lower than the previous baseline. China’s 2020 growth forecast has also been reduced to 4.8% from the previous estimate of 5.2%. For the US, growth of 1.5% is now expected, down from the previous estimate of 1.7%. Furthermore, weak demand will translate into generally subdued commodity prices and oil prices will remain volatile.

“Several plausible developments could lead to a far more negative scenario than our baseline forecast,” said Moody’s Vice President Madhavi Bokil.

“A sustained pullback in consumption, coupled with extended closures of businesses, would hurt earnings, drive layoffs and weigh on sentiment. Such conditions could ultimately feed self-sustaining recessionary dynamics.”

Furthermore, heightened asset price volatility would also result, serving to magnify and transmit the shock across borders, including to emerging market countries. Currently, uncertainty remains unusually high.

Policy announcements from fiscal authorities, central banks and international institutions so far suggest that policy response is likely to be strong and targeted in affected countries. Targeted fiscal policy measures will likely help limit the damage in individual economies.

Moody’s also expects central banks to adopt an easier stance, reinforcing fiscal measures. The US Federal Reserve’s decision to cut the federal funds rate by 50 basis points and the announcements from the European Central Bank and the Bank of Japan assuring policy support will partially limit global financial market volatility and partly counter the tightening of financial conditions.