Penciling out a pandemic

One forecast has the new coronavirus wiping out $1 trillion in world output

- By Cristina Lindblad

The global economy had seemed to be improving as the anxiety caused by the trade wars and Brexit eased. Suddenly, however, the world is confronting the specter of the first truly disruptive pandemic of the era of globalization.

With the death toll in the coronavirus outbreak approaching 2,800 and approximately 82,000 cases officially recorded across 30 countries, some economists are war-gaming what an uncontrolled outbreak could mean for global growth.

Oxford Economics Ltd. figures an international health crisis could erase more than $1 trillion from the world’s gross domestic product. That would be the price tag for a spike in workplace absenteeism, lower productivity, sliding travel, disrupted supply chains, and reduced trade and investment.

Investors are already nervous. In the U.S. a multiday rout wiped out stock gains for the year, while yields on 10-year government bonds touched record lows. “The market is pricing in a significant slowdown in GDP and a 10% impact on earnings,” says Zhiwei Ren, portfolio manager at Penn Mutual Asset Management.

For now, central bankers and governments continue to bet that the virus won’t damage the world economy by much and that there will be a rapid rebound once the illness is contained. But that confidence is being tested. While the International Monetary Fund reckons the virus will force it to knock only 0.1 percentage point off its 3.3% global growth forecast for 2020, IMF Chief Economist Gita Gopinath said in a Feb. 24 Yahoo Finance interview that a pandemic would conjure “really downside, dire scenarios.”