IIF slashes 2020 global growth outlook to 1% amid coronavirus fallout

The forecast is far below the 2.6 per cent last year and the weakest since the 2008 financial crisis

epa08274148 A man wearing a mask pulls a tricycle with his tricycle in Beijing, China, 06 March 2020. The coronavirus outbreak has claimed over 3,000 lives worldwide.  EPA/WU HONG
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Global growth in 2020 could “conceivably” approach 1 per cent, down from 2.6 per cent last year, due to the economic fallout of the coronavirus outbreak, the International Institute of Finance said.

The estimate would be the weakest growth since the 2008 global financial crisis. The IIF, a global association of the financial industry, also downgraded its China growth forecast to below 4 per cent from 5.9 per cent previously and US growth to 1.3 per cent from 2 per cent.

“The range of potential outcomes is large and depends on the spread of the virus and resulting economic fallout, all of which are highly uncertain at this stage,” economists from the Washington-based organisation said in a report Thursday.

The outbreak of Covid-19 has spread rapidly around the world with the number of cases approaching 100,000 and deaths above 3,300. The World Health Organisation said “this is a time for pulling out all the stops” as governments implemented containment measures, such as limiting travel and closing schools.

Earlier this week, the Organisation for Economic Co-operation and Development, revised down its estimate of global GDP growth by half a percentage point to 2.4 per cent in 2020. It said growth could fall to 1.5 per cent if the outbreak persisted and could tip many countries into recession.

The International Monetary Fund also this week said it sees global growth in 2020 falling below last year’s level of 2.9 per cent, but managing director Kristalina Georgieva said “how far it will fall, and for how long, is difficult to predict”. In January, the IMF had projected global growth of 3.3 per cent in 2020.

The IIF report said that, although the outbreak has caused supply disruptions to manufacturing, the “epicentre of potential fallout for the economy is services”.

The below 4 per cent growth estimate for China embeds a drop in GDP of 1 per cent in the first quarter from the previous quarter, and assumes a rapid recovery thereafter. US growth will be weakest in the second quarter, the IIF said. Other vulnerable economies include Germany and Japan.

Growth across emerging markets, already weak before Covid-19 became an issue, is also at risk. Low-growth emerging markets, such as Mexico and South Africa, should take the opportunity to ease monetary policy after the US Federal Reserve cut its benchmark rate by 50 basis points in an emergency move this week, the IIF said.

With the spread of the virus stoking fears of a global recession, capital flows to emerging markets saw a "dramatic collapse" in February, IIF economists said in a separate report Monday. Emerging market securities attracted only $3.4 billion (Dh12.48bn) last month, a sharp drop from $29.5bn recorded in January.