- Concerns about a deadly virus outbreak have rippled far beyond its epicentre in China in recent weeks.
- Analysts estimate that the coronavirus will chip away as much as 0.3% from global gross domestic product this year.
- That would bring the annual growth rate to its slowest pace since the financial crisis a decade ago.
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Concerns about a deadly virus outbreak have rippled far beyond its epicentre in China in recent weeks, prompting a wave of efforts to insulate the global economy from a sharp slowdown.
The rapidly spreading coronavirus has led to a host of stringent restrictions on travel and commerce not only in the second-largest economy but also throughout the world, shuttering companies and upending supply chains.
Policymakers have scrambled to reassure businesses and investors whose growth outlooks for 2020 had already dimmed against a backdrop of a broader slowdown and trade tensions. China slashed interest rates on reverse repurchase agreements at the start of the week and injected the equivalent of $US173 billion into money markets.
But even aggressive stimulus measures are unlikely to offset losses from the coronavirus in China, where the majority of economic activity has virtually grinded to a halt. The benchmark Shanghai Composite index closed down nearly 8% on Monday, erasing roughly $US400 billion in value.
“We doubt that this alone will be enough to put China’s economy back on track,” said Hubert de Barochez, an economist at Capital Economics. “The latest cuts will do nothing directly to offset the drag on economic activity from Chinese authorities’ response to the epidemic.”
In the US, the Federal Reserve called the coronavirus a “very serious issue” and said it would closely monitor its spread. Risks to the global economy could be substantially larger than a similar health epidemic in 2003, known as the SARS outbreak, because business ties between China and other countries have only deepened since then.
Analysts estimate that the coronavirus will chip away as much as 0.3% from global gross domestic product this year, which would bring the annual growth rate to its slowest pace since the financial crisis a decade ago. Many note that with no insight into how long the epidemic will last, the damage may become even more widespread than originally thought.
“We continue to believe that the global government response to the coronavirus has been aggressive and should eventually halt or limit the spread of the disease,” said Mark Haefele, the chief investment officer at UBS Global Wealth Management. “However, it is difficult to know how long it will be before the number of new daily cases begins to fall.”
Crude prices closed at the lowest level in more than a year on Monday on concerns about anemic demand in China, which is the largest importer of oil. Saudi Arabia, the unofficial leader of the Organisation of the Petroleum Exporting Countries, could push for large oil production cuts at cartel meetings on Tuesday and Wednesday.
“The coronavirus has roiled the oil market, alongside many other asset classes, but this epidemic is a global story,” said Michael Tran, an analyst at RBC.
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