Global recession is likely if COVID-19 becomes a pandemic, says Moody’s Analytics

KUALA LUMPUR (Feb 26): A global recession is likely if COVID-19 becomes a pandemic, and the odds of that are uncomfortably high and rising with infections surging in Italy and Korea, according to Moody’s Analytics.

In a commentary today, Moody’s Analytics chief economist Mark Zandi said the US economy is more insulated from the impact of the virus, but it is not immune, and it too would likely suffer a downturn in this scenario.

Zandi said COVID-19 is battering the global economy in numerous ways.

“Chinese business travel and tourism has all but stopped; global airlines are not going to China and cruise lines are canceling most Asia-Pacific itineraries.

“This is a huge problem for major travel destinations, including in the US, where some 3 million Chinese tourists visit each year,” he said.

Zandi said Chinese tourists to the US are among the biggest spenders of any foreign tourists.

He said travel in Europe is also sure to be severely impacted as Milan, Italy, the centre of the new infections in that country, is a major travel hub for the Continent.

“Shuttered Chinese factories are also a problem for countries and companies fastened into China’s manufacturing supply chain. Apple, Nike and General Motors are some prominent American examples.

“Shortages of some goods will likely result this spring, meaning higher prices for things we buy at Walmart and on Amazon,” he said.

Zandi said US exports to China will suffer given slumping Chinese demand.

He said China is supposed to ramp up its imports of US products as part of the Phase One trade deal signed by the two countries late last year.

“How much the Chinese would actually purchase from the US was already an open question.

“Given COVID-19, it is even more questionable. President Trump has suggested that the federal government will cut another check to hard-pressed US farmers to make up for the losses,” he said.

Zandi said global businesses can’t seem to catch a break.

“They have been grappling with the trade war, the Brexit transition, and the economic policy implications of the fast-approaching US presidential election.

“COVID-19 is now another on this lengthening list of concerns, making it even more likely that already-cautious business executives will continue to sit on new investment and expansion plans.

“Moreover, they will likely be slow to ramp up their operations, fearful of the implications if they move too quickly and their workers get sick,” he said.

Zandi said that stock and bond investors have finally taken note of what the virus means for the global economy.

“It was one thing when the virus was exclusively a Chinese problem; it is something else altogether if the virus is spreading through the rest of Asia and Europe, with rising odds the entire globe will be infected.

“The implications will soon come into even stronger relief as multinational corporations begin reporting what the virus has done to their sales and profits.

“With stock prices trading at record highs just last week, investors aren’t ready for bad news from the companies they are invested in,” he said.

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