A new report says the spreading coronavirus could make the world economy shrink during the first three months of 2020. If confirmed, it would be the first quarterly drop in economic activity since the international financial crisis more than 10 years ago.
The Organization for Economic Cooperation and Development (OECD) released a special report on the effect of the virus Monday. The Paris-based OECD advises developed economies on policy.
The report said the world economy is still expected to grow both this year and next year. But the OECD lowered its estimate for international growth in 2020 by half a percentage point, to 2.4 percent. It said the growth rate could go as low as 1.5 percent if the virus lasts long and spreads widely.
Workers sew hazardous material suits to be used in the COVID-19 outbreak at the Zhejiang Ugly Duck Industry garment factory in Wenzhou, China. (Photo by NOEL CELIS / AFP)
The new coronavirus has caused more than 3,000 deaths worldwide. In addition to the “human suffering” from the virus, the report said that “economic prospects remain…very uncertain.”
The last time the world economy shrank on a quarter-on-quarter basis was at the end of 2008. At that time, a shock to financial businesses caused problems for companies around the world. Many people lost their jobs. The world economy continued to shrink through 2009.
The OECD said China’s reduced production is not only hurting Asia, but also companies that depend on Chinese goods.
The report urged governments to act quickly to prevent contagion and bring back people’s confidence in economic conditions. It also said that the effect of this virus is much greater than past outbreaks because the world’s economy is “more interconnected.” China, it added, has a lot more effect on trade, financial markets and tourism.
China manufacturing down
China’s viral outbreak has already caused problems for international supply chains.
Chinese manufacturing fell in February as anti-virus controls had an effect on the world’s second largest economy. Chinese factory activity fell to its lowest rate and to its lowest level on record. That information is based on studies by a business magazine, a government agency and an industry group.
Chinese factories supply the products and parts for most of the world’s smartphones, household goods and other products. In China, sales of houses, cars and other big purchases fell in recent weeks.
China has tried to calm investors, industries and workers. The government has cut tax rates and offered aid to businesses.
Economists, however, are worrying about the future. If the virus spreads, people will stop traveling, eating at restaurants, and going to stores. There may be large quarantines.
Thierry Breton works for the European Union and oversees the EU’s markets. He estimated Monday that the virus has cost Europe 2 billion euros this year because of a decrease in tourism from China. Many expect the situation in Europe will worsen. The virus has struck Italy, and events like the yearly Venice Carnival have been cancelled.
Investors seem to expect central banks to lower interest rates to help the economy. Experts, however, say that will not solve the problem.
Lower rates can help people and businesses borrow and spend money. That can help push up economic activity. But lower rates cannot make sick people healthy. It also cannot reopen factories whose workers are kept home because of quarantines or restart supply chains in areas affected by the outbreak.
I’m Susan Shand.
The Associated Press reported this story. Susan Shand adapted it for VOA Learning English. George Grow was the editor.
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Words in This Story
quarterly – adj.every three months
prospect – n. the possibility that something will happen in the future
contagion – n.the process by which a disease is passed from one person or animal to another by touching
confidence – n.a feeling or belief that you can do something well or succeed at something
outbreak – n. a sudden start or increase of fighting or disease
tourism – n. the business of providing hotels, restaurants, entertainment, etc., for people who are traveling
supply chain– n. a number of factories or business that make and ship needed supplies to other factories or businesses
quarantine – v. the period of time during which a person or animal that has a disease or that might have a disease is kept away from others to prevent the disease from spreading