Global recession concerns mount as coronavirus continues to spread

The World Bank warned in its forecast report last week that global productivity growth has slowed more broadly and steeply since the global financial crisis in 2018 than at any time in four decades.

The World Bank also estimated slower growth among advanced economies in 2020 due to continued softness in manufacturing as well as a further moderate slowdown in China amid continued domestic and external headwinds.

China makes one fifth of global GPD growth

As key indicators from the World Bank and the International Monetary Fund (IMF) suggest, China’s GDP growth has averaged almost 10% a year since it began to open up and reform its economy in 1978. According to the Chinese National Bureau of Statistics (NBS), the country’s GDP totalled $14.3 trillion in 2019, accounting for approximately 17-20% of the global GDP growth. This also places the Chinese GDP second only to the US.

Since 2001, China has also rapidly positioned itself at the centre of a wide-ranging global supply chains. As the World Bank data shows, between 2001 and 2008, manufacturing exports from China surged by 29% per year on average: a rate significantly faster than that of other Asian countries and regions.

Coronavirus outbreak brings China economy to a standstill

Considering China’s position in the global economy and supply chain, the coronavirus outbreak that has been making its way around the world is posing a major threat.

The virus, which has killed more than 1000 at the time of publication, led to a a formal extension of the Lunar New Year and a wave of factory shutdowns in much of China as well as other Asian countries.

The majority of factories delayed opening until mid-February while others suspended operations due to a supply chain disruption, which caused a shortage of parts from China. Media reports said that the diminished trade has cost container shipping lines $350 million a week in lost volumes since the disease broke out in January.

In addition to these, millions of people have remained locked down across the country, possibly costing more than $144 billion a week in losses to the service sector.

Corona impact expected to be worse than SARS

Several economists and market analysts are now estimating that the global growth might see a trim of around 0.3%, against a growth forecast of 3.3%, providing that the outbreak is short-lived. However others paint a gloomier picture, arguing that the severe acute respiratory syndrome (SARS) cost around $40 billion in 2003 –a time when China accounted for only 4.3% of the global GDP. Considering that China now accounts for more than 17% of the global GDP, analysts warn that this might push the global economy towards recession.