Coronavirus Exposes Global Economic Vulnerability

Jomo Kwame Sundaram is a prominent Malaysian economist. He holds the Tun Hussein Onn Chair in International Studies at the Institute of Strategic and International Studies, Malaysia, and is a Senior Advisor at Khazanah Research Institute and Visiting Fellow at the Initiative for Policy Dialogue, Columbia University. He was also the founder-Chair of International Development Economics Associates (IDEAs) and UN Assistant Secretary General for Economic Development. Anis Chowdhury, Adjunct Professor at Western Sydney University & University of New South Wales (Australia). Held senior United Nations positions in New York and Bangkok.

- Jomo Kwame Sundaram, Anis Chowdhury

As the outbreak of the novel coronavirus Covid-19 threatens a global pandemic, major stock markets around the world have suffered their worst performance since the 2008 financial crush.

GROWTH DISRUPTION

The OECD has warned that the coronavirus outbreak could halve global economic growth this year to 1.5 percent, the slowest rate since 2009. It has cut its 2020 growth forecast for China to a 30-year low of 4.9 percent, down from 5.7 percent in November.

The IMF downgraded its growth forecast for China to 5.6 percent in 2020, its lowest since 1990. Economists, polled by Reuters during 7-13 February, expected China’s economic growth to slump to 4.5 percent in the first quarter of 2020, down from 6 percent in the previous quarter, the slowest since the financial crisis.

Meanwhile, China’s manufacturing sector tumbled in February, as many factories remained closed after the annual lunar new year break. The Manufacturing Purchasing Managers Index (PMI), a widely used measure of factory activity, plunged to a record low in February, reflecting the sharp contraction.

The World Trade Organization (WTO) head expects the coronavirus epidemic to greatly slow the global economy, as China accounts for 19.1 percent of global GDP using purchasing power parity (PPP), or 17 percent at current exchange rates, 13 percent of global trade, and 28 percent of global manufacturing output in 2018.

IMPACT ON DEVELOPING ECONOMIES

Developing countries, especially those dependent on commodity exports and global supply chains, are particularly vulnerable.