Will Coronavirus Cause Global Recession? Organization For Economic Development Issues Predictions

The Organization for Economic Cooperation and Development on Monday scaled back its predictions for global economic growth to no more than 2.4% from 2.9% as a result of the spreading coronavirus.

In its March report, the Paris-based organization said the reduction represents about $400 billion and cautioned the impact could be much worse.

The global economy slowed in 2019, sharply in the fourth quarter, increasing the likelihood of further contraction in the first three quarters of this year. A rebound is expected in 2021.

The coronavirus outbreak has been most severe in China where 79,968 cases have been confirmed along with 2,873 deaths. The virus, however, has spread to about 60 countries, affecting 7,169 people and leading to 104 deaths, two, so far, in the U.S.

China represents about 16% of global economic output.

Tourism is expected to be among the hardest-hit industries. United Airlines already has canceled flights to China through April and cut flights to other Asian destinations. Other airlines also are cutting back their Asia flights while American Airlines scaled back flights to Europe.

China instituted draconian measures in Wuhan and surrounding Hubei province, the epicenter of the outbreak, to try to stem the spread, resulting in disruptions to the manufacturing supply chains for industries dependent on Chinese components.

IHS Markit reported though production volumes in Canada rose at the fastest pace since October 2019, average lead times from suppliers lengthened sharply. Factories in South Korea, which has reported 3,736 cases and 18 deaths, suffered a steep decline with less severe falls reported by Japan (239 cases and five deaths), Thailand (42 cases), Malaysia (24 cases and no deaths) and Taiwan (2,359 cases and five deaths).

Assuming the virus is not as severe outside China as inside, the OECD report forecast just a slight impact on the U.S. economy, down just one tick to 1.9%. Italy, which has the highest coronavirus in Europe with 1,128 cases and 29 deaths, was expected to see no growth.

Should the coronavirus prove as virulent outside China, global growth could slow 1.5%. If the spread to Africa, Latin America and India is severe, growth likely will take an even bigger hit.