The outbreak of the coronavirus is likely to force a sharp drop in the Chinese economy, which will make its recovery equally rapid and help in keeping the overall impact on global growth at a moderate level, the International Monetary Fund managing director Kristalina Georgieva said.
There is no definitive data to make an accurate projection and the IMF is working with a scenario and “not with a precise number”, she said in Riyadh where G20 finance and central bank governors are meeting. The IMF also recognises other scenarios, where the impact of the outbreak could be significantly more, she noted.
“The most likely scenario is a V-shaped impact of the virus, in which a very abrupt, significant drop in China will be followed by very rapid recovery and the impact on the rest of the world growth will be moderate,” she said.
The quicker the spread of the epidemic is contained the softer the impact will be on the global economy, she also said in a blog post on the IMF website on Tuesday.
The deadly coronavirus has so far claimed more than 2,200 lives and infected more than 75,500 people on mainland China alone. The Chinese economy grew at the slowest pace in three decades last year on the back of a trade war with the US. The economy is expected to slow further this year as the infection outbreak paralysed factories and disrupted global supply chains.
The number of deaths by the latest strain of the coronavirus have surpassed those from the SARS in 2002-03. Sars killed 774 people and infected almost 8,100 people in 26 countries over eight months, according to the World Health Organisation.
Ms Georgieva cautioned against comparing the new virus, Covid-19, with the Sars epidemic in 2002, China only represented 8 per cent of the global economy at the time of SARS, while it accounts for about 19 per cent of global GDP now.
“What we know is that its an epidemic that is a different from SARS from 2002. The Chinese economy is different from what it was then …. and we also unfortunately know that today growth is much more fragile than it was in 2002,” she said. “Those who are comparing it with SARS are taking us to a rosier place.”
There are still many unknowns about the new strain of the coronavirus. It remains to be seen how extensively the epidemic will grow beyond China or how quickly it will be contained and as it is being contained, to what extent will it impact the world economy.
“The broader message from the virus is that we do live in a shock-prone world and, therefore, we have to get accustomed to more uncertainty,” she said.
Ms Georgieva called for a synchronised policy response to minimise the impact of the virus and said although the monetary policy space is limited it is not zero.
The world, she said, last year sunk into a synchronised slowdown as 90 per cent of the world economy “slowed in sync”. The central banks acted in sync as well and 49 of them globally cut their interest rates to boost growth, she noted.
“A number of countries have fiscal space to act …. and China is among these countries,” she said.
