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Economists Slash Global Growth Forecasts as Coronavirus Spreads Economists Slash Global Growth Forecasts as Coronavirus Spreads
(about 2 hours later)
Analysts around the world slashed their 2020 economic forecasts as the coronavirus continued to spread beyond China and weak Asian data offered an early hint at the infection’s cost to business.Analysts around the world slashed their 2020 economic forecasts as the coronavirus continued to spread beyond China and weak Asian data offered an early hint at the infection’s cost to business.
One major multinational group warned global growth could be cut in half if the infection spreads widely.One major multinational group warned global growth could be cut in half if the infection spreads widely.
The Organization for Economic Cooperation and Development said that if the outbreak sweeps through the Asia-Pacific region, Europe and North America, global growth could fall to just 1.5 percent in 2020, far less than the 3 percent it projected before the virus surfaced.The Organization for Economic Cooperation and Development said that if the outbreak sweeps through the Asia-Pacific region, Europe and North America, global growth could fall to just 1.5 percent in 2020, far less than the 3 percent it projected before the virus surfaced.
“This scenario would put Japan and Europe in recession, and the U.S. close to zero,” Laurence Boone, the organization’s chief economist, told reporters during a conference call Monday.“This scenario would put Japan and Europe in recession, and the U.S. close to zero,” Laurence Boone, the organization’s chief economist, told reporters during a conference call Monday.
She added, “This is not a worst-case scenario.” The impact could be even more dire if the outbreak spreads beyond Asia, Europe and the United States and into the southern hemisphere, she said.She added, “This is not a worst-case scenario.” The impact could be even more dire if the outbreak spreads beyond Asia, Europe and the United States and into the southern hemisphere, she said.
Even if the outbreak is mild and mostly contained outside China — the O.E.C.D.’s expected scenario — global growth could be lowered about half a percentage point relative to previous forecasts, according to an update that the group released on Monday ominously titled, “Coronavirus: The World Economy at Risk.”Even if the outbreak is mild and mostly contained outside China — the O.E.C.D.’s expected scenario — global growth could be lowered about half a percentage point relative to previous forecasts, according to an update that the group released on Monday ominously titled, “Coronavirus: The World Economy at Risk.”
The spread of the coronavirus has sent markets reeling as investors anticipate painful economic fallout. Economists across Wall Street revised their 2020 outlooks sharply downward.The spread of the coronavirus has sent markets reeling as investors anticipate painful economic fallout. Economists across Wall Street revised their 2020 outlooks sharply downward.
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Goldman Sachs economists expect global growth to slump to around 2 percent for the full year, down from their previous 3 percent forecast, but said in a note Friday that there are risks of a worldwide recession if the virus becomes a more severe global pandemic.Goldman Sachs economists expect global growth to slump to around 2 percent for the full year, down from their previous 3 percent forecast, but said in a note Friday that there are risks of a worldwide recession if the virus becomes a more severe global pandemic.
They also expect the virus to drive the U.S. economy to zero growth in the second quarter before shaving about 1 percentage point from growth for the year as a whole, using a measure that looks at the fourth quarter versus the prior year. Its economists said in a note Sunday that “while the U.S. economy avoids recession in our baseline forecast, the downside risks have clearly grown.They also expect the virus to drive the U.S. economy to zero growth in the second quarter before shaving about 1 percentage point from growth for the year as a whole, using a measure that looks at the fourth quarter versus the prior year. Its economists said in a note Sunday that “while the U.S. economy avoids recession in our baseline forecast, the downside risks have clearly grown.
Neil Shearing, group chief economist at Capital Economics, wrote in a note Monday that in a good scenario, global growth will fall to 2.5 percent this year — the weakest pace since 2009. In a bad scenario, it could shrink by 0.5 percent, a contraction on scale with the financial crisis.Neil Shearing, group chief economist at Capital Economics, wrote in a note Monday that in a good scenario, global growth will fall to 2.5 percent this year — the weakest pace since 2009. In a bad scenario, it could shrink by 0.5 percent, a contraction on scale with the financial crisis.
Analysts from the O.E.C.D., a forum of 36 countries meant to foster cooperation and trade, stopped short of forecasting an all-out global downturn. But they stressed that there was potential for the economic impact to become much worse and said that governments should already be pouring resources into health care and taking measures to support businesses hit by slumping sales.Analysts from the O.E.C.D., a forum of 36 countries meant to foster cooperation and trade, stopped short of forecasting an all-out global downturn. But they stressed that there was potential for the economic impact to become much worse and said that governments should already be pouring resources into health care and taking measures to support businesses hit by slumping sales.
“Regardless of how the virus spreads in coming days and months, we call on governments to take action now,” Ms. Boone said.“Regardless of how the virus spreads in coming days and months, we call on governments to take action now,” Ms. Boone said.
The economic risks posed by the coronavirus are unpredictable. It is unclear how far and fast infections will spread, making it hard to estimate the economic fallout from such actions as widespread quarantines and supply chain disruptions. Outbreaks in China, Japan, Iran, Italy and South Korea have already closed many factories and slowed or halted tourism. Even in the United States, which has had few cases, major companies like Twitter and Amazon have told their employees to avoid nonessential travel.The economic risks posed by the coronavirus are unpredictable. It is unclear how far and fast infections will spread, making it hard to estimate the economic fallout from such actions as widespread quarantines and supply chain disruptions. Outbreaks in China, Japan, Iran, Italy and South Korea have already closed many factories and slowed or halted tourism. Even in the United States, which has had few cases, major companies like Twitter and Amazon have told their employees to avoid nonessential travel.
Chinese data already suggest unexpectedly large economic costs. Two gauges of manufacturing activity slumped in February, with the Caixin manufacturing index falling to the lowest level in its history in data released Monday. Real-time trackers of Chinese activity, from coal consumption to property sales, remain severely depressed.Chinese data already suggest unexpectedly large economic costs. Two gauges of manufacturing activity slumped in February, with the Caixin manufacturing index falling to the lowest level in its history in data released Monday. Real-time trackers of Chinese activity, from coal consumption to property sales, remain severely depressed.
Central banks have signaled that they stand ready to act as the damage mounts, and investors have begun looking to the Federal Reserve and its global counterparts for relief. The Fed chair, Jerome H. Powell, released a statement on Friday pledging that the central bank would “act as appropriate” to protect growth. The Bank of Japan and Bank of England issued statements of their own on Monday, signaling preparedness.Central banks have signaled that they stand ready to act as the damage mounts, and investors have begun looking to the Federal Reserve and its global counterparts for relief. The Fed chair, Jerome H. Powell, released a statement on Friday pledging that the central bank would “act as appropriate” to protect growth. The Bank of Japan and Bank of England issued statements of their own on Monday, signaling preparedness.
“The Fed-led pivot reflects the global spread of the virus and its economic disruptions, sharp equity market weakness and an emerging realization that corporate cash flow problems could create strains in credit markets,” Krishna Guha and Ernie Tedeschi at Evercore ISI wrote in a note following the announcements.“The Fed-led pivot reflects the global spread of the virus and its economic disruptions, sharp equity market weakness and an emerging realization that corporate cash flow problems could create strains in credit markets,” Krishna Guha and Ernie Tedeschi at Evercore ISI wrote in a note following the announcements.
Ms. Boone said that she welcomed expressions of resolve by central banks, but that the onus was also on governments.Ms. Boone said that she welcomed expressions of resolve by central banks, but that the onus was also on governments.
For example, political leaders could provide incentives for companies to shorten work hours rather than lay people off, or delay tax payments for small businesses suffering from plunging sales. Ms. Boone said it would be “a very positive signal” if the United States and China were to drop the tariffs they had imposed as part of a trade war.For example, political leaders could provide incentives for companies to shorten work hours rather than lay people off, or delay tax payments for small businesses suffering from plunging sales. Ms. Boone said it would be “a very positive signal” if the United States and China were to drop the tariffs they had imposed as part of a trade war.
“This is not a shock that central banks alone can address,” Ms. Boone said. “It really, really needs to be accompanied by fiscal measures.”“This is not a shock that central banks alone can address,” Ms. Boone said. “It really, really needs to be accompanied by fiscal measures.”
The French finance minister, Bruno Le Maire, said on Monday that the government would “unlock whatever it takes” to help French companies. “We will show complete solidarity vis-à-vis all contractors that today are on the front line,” he said.The French finance minister, Bruno Le Maire, said on Monday that the government would “unlock whatever it takes” to help French companies. “We will show complete solidarity vis-à-vis all contractors that today are on the front line,” he said.
Even under the O.E.C.D.’s main scenario, in which the virus is quickly contained, its economists anticipate that China’s central bank and many of its global counterparts would lower interest rates a quarter percentage point or more.Even under the O.E.C.D.’s main scenario, in which the virus is quickly contained, its economists anticipate that China’s central bank and many of its global counterparts would lower interest rates a quarter percentage point or more.
That said, the report went on, “There is limited need for further reductions in policy interest rates in the United States unless the risks of a sharper growth slowdown rise.”That said, the report went on, “There is limited need for further reductions in policy interest rates in the United States unless the risks of a sharper growth slowdown rise.”
Should the virus spread more widely, countries that have room to cut rates are likely to lower them by 1 percentage point on average in 2020, according to the report. But central banks in South Korea, the United Kingdom, and Australia all have limited room to lower borrowing costs, which are already low, and would hit zero in the report’s scenario.Should the virus spread more widely, countries that have room to cut rates are likely to lower them by 1 percentage point on average in 2020, according to the report. But central banks in South Korea, the United Kingdom, and Australia all have limited room to lower borrowing costs, which are already low, and would hit zero in the report’s scenario.
“The increasing constraints on monetary policy suggest that a swift and sizable discretionary fiscal response would be needed in event of a scenario of this type occurring,” the O.E.C.D. said. “This reinforces the need for stronger global policy cooperation.”“The increasing constraints on monetary policy suggest that a swift and sizable discretionary fiscal response would be needed in event of a scenario of this type occurring,” the O.E.C.D. said. “This reinforces the need for stronger global policy cooperation.”
The sharp drop in stock markets last week “adds to the persisting financial vulnerabilities from the tensions between slower growth, high corporate debt and deteriorating credit quality, including in China,” the report said. “These developments raise the risk of significant corporate stress if risk aversion intensifies from already high levels.”The sharp drop in stock markets last week “adds to the persisting financial vulnerabilities from the tensions between slower growth, high corporate debt and deteriorating credit quality, including in China,” the report said. “These developments raise the risk of significant corporate stress if risk aversion intensifies from already high levels.”
Ms. Boone said she was concerned that the outbreak could undermine businesses confidence and prompt companies to cut back on hiring and investment at a time when global growth was already weak. Ms. Boone said she was concerned that the outbreak could undermine businesses’ confidence and prompt companies to cut back on hiring and investment at a time when global growth was already weak.
“All in all, the global economic situation before the virus hit was not that robust,” she said.“All in all, the global economic situation before the virus hit was not that robust,” she said.
Liz Alderman contributed reporting.Liz Alderman contributed reporting.