- The Organization for Economic Cooperation and Development has warned that the global economy is facing its biggest threat since the financial crisis.
- Global growth is expected to fall as low as 1.5% this year, halving an OECD 2020 projection from November.
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The novel coronavirus has the world economy in its most "precarious position" since the 2008 financial crisis, the Organization for Economic Cooperation and Development said Monday in its latest forecast.
"The global economy faces its biggest danger since the financial crisis," the OECD warned. "Containing the epidemic and protecting people is the priority."
Adding to ongoing concerns about the state of the global economy, the OECD's chief economist, Laurence Boone, said in a blog post that the organization expected a sharp slowdown in global growth in early 2020. Boone added that OECD projections indicated the level of world growth would fall as low as 1.5% this year, halving the 2020 projection of 3% that the organization made in November.
"We have revised our projection for the year from an already low 3% in November to only 2.4%, lower than in any year since the financial crisis," Boone said. "In a downside-risk scenario where epidemics break out in some other countries across the globe, the slowdown will be sharper and more prolonged."
The new coronavirus — which causes a disease named COVID-19 — has infected more than 89,000 people, killed at least 3,000, and spread to upward of 60 countries. The epidemic has disrupted global supply chains, hammered consumer demand, and forced companies to close stores or reduce opening hours in affected areas.
Further volatility
The Chinese economy is experiencing a sharp slowdown in the first quarter of 2020. "As China accounts for 17% of global GDP, 11% of world trade, 9% of global tourism and over 40% of global demand of some commodities, negative spillovers to the rest of the world are sizeable," the OECD said on Monday. "There is mounting evidence of sharp declines in tourism, supply chain disruptions, weak commodity demand and falling consumer confidence."
For investors this means more volatility. Financial markets have been on a roller-coaster ride since the outbreak of the novel coronavirus, with the S&P 500 last week delivering its worst performance since the 2008 financial crisis.
"For investors it means putting up with a lot more volatility to come — this event is unfortunately far from over and trying to call when to buy and sell in the face of such an unknown event is virtually impossible," Adrian Lowcock, the head of personal investing at the investment platform Willis Owen, said in a research note. "While many stocks look cheap now, they could get a lot cheaper before this crisis is over."
The OECD warned that regardless of where the virus spread next, the global economy had already suffered a sharp setback because of trade wars and political tensions.
It called on governments to act quickly and not "gamble on an automatic sharp bounce-back." It recommended limiting travel, imposing quarantines, and canceling events to contain the epidemic. "Increased government spending should be first directed to the health sector, tackling virus outbreaks and supporting research," Boone said in the blog post.