Corona impact on global growth, rate to be slower at 1.9% : Moody’s

New Delhi, March 12 (SocialNews.XYZ) The spread of coronavirus has knocked global growth expectations for 2020 off course with its growth now expected to be at a much slower rate of 1.9 per cent, Moodys Analytics has said in its latest forecast.

In its earlier Global Macro Outlook 2020-21 released this month Moody's had revised baseline growth for economies across the globe downwards in wave of the virus spread between 0.1 to 0.4 percentage.

The latest assessment of Moody's Analytics has said that there was expectation that the global economy would be on a stronger footing in 2020, following the signing of the Phase One trade agreement mid-January. But it never eventuated and coronavirus has led to significant downward revisions in expectations for GDP growth across the major economies in 2020.

"While a health epidemic typically brings a strong revival in activity after containment, the COVID-19 outbreak has not reached that point, and the economic toll has increased. The economic cost of the virus on to global economy will ultimately be determined by the length of time taken to contain it and the number of infections," the forecast authored by Katrina Ell said.

Business investment never got a chance to recover with the signing of the Phase One trade agreement on 15 January, which represented reduced odds of further trade war escalation. Instead, global conditions have deteriorated further with COVID-19 becoming a rising concern. The virus that seemed contained to China earlier has now spread across the globe in almost all contents forcing the WHO to declare it as a pandemic.

A Moody's Analytics weekly business confidence survey shows that expectations of both current and future conditions have deteriorated to their lowest level since the global recession in 2009.

If businesses believe that conditions six months ahead will be just as weak as they currently are, they will continue to hold back on investment and hiring, and the risk that this will become a self-fulfilling prophecy is high, adding further damage to global growth expectations, Moody's Analytics said.

The pronounced weakness in both consumer and business sentiment across the globe shows that it is not the virus itself, but rather the fear and panic related to the virus and the associated altered economic behaviour that could be a damaging tipping point, forcing the global economy onto a darker path, it added.

Some of the policy measures to economic impact of coronavirus has been surprising but a step in the right direction. The Federal Reserve surprised markets with a 50-basis point reduction in March and odds of another out-of-cycle move are high in the near term. A US fiscal response is also being mulled. This has coincided with US GDP growth expected to hit 1.4 per cent in 2020, according to Moody's March baseline, 0.5 percentage point weaker than our expectation in January.

The Bank of England also reduced the benchmark rate by 50 basis points in the wake of the virus, providing a further example of the economic toll that is occurring. In Asia, which was initially the hardest-hit region because of its geographic and economic proximity to China, policymakers across the region have been on the front foot to cushion the hit, with targeted fiscal and monetary stimulus being released in February and March as well as interest rate cuts.

Not only oil, the demand supply issues are also playing out bond yields. COVID-19 is both a demand and supply shock. The long-term bond yields are falling in the developed world, including in the US, Europe, Japan and Australia. The fall in 10- year yields reflects how global recession odds have increased alongside downward revisions to global growth, Moody's Analytics said.

Source: IANS