|12 March, 2020

Global recession now inevitable as coronavirus continues to spread: analysts

Some economies in Europe, Asia will be worst hit, add analysts

Women wears face masks outside an office complex in Beijing as the country is hit by an outbreak of the novel coronavirus, China, March 11, 2020.

Women wears face masks outside an office complex in Beijing as the country is hit by an outbreak of the novel coronavirus, China, March 11, 2020.

Reuters/Thomas Peter

It is inevitable that the world is going to fall into a recession this year, as the coronavirus continues to wreak havoc in more than 100 countries around the world, analysts have warned.

The warning comes as the series of travel restrictions, flight and event cancellations, lockdowns and school closures worldwide are starting to hurt businesses and stock markets, and oil prices fall amid a price war between two of the world’s major oil producers.

“I now believe that it’s almost inevitable that there will be a global recession this year,” said Nigel Green, chief executive and founder of deVere Group, a financial advisory firm.

Green noted that every major stock market is getting hammered as oil prices plunge following the breakdown of Saudi Arabia’s oil-cutting alliance with Russia over the weekend, while the entire powerhouse cities in Asia and Europe are nearly shut down.

“Multinational companies have warned that coronavirus will severely hit profits. Workers are being evacuated and forced to work from home and to avoid travelling,” Green said.

“We can see both supply and consumer demand are already being impacted in key sectors, such as travel and tourism, hospitality, manufacturing and retail, and it is going to extend to others,” he added.

The number of coronavirus infections has now reached more than 118,000 worldwide, with the death toll hitting close to 4,300.

As governments around the world desperately try to contain the spread of the virus, a growing number of flights is being halted and educational institutions being shut. On Tuesday, Italy became the first country outside Asia to put millions of people on lockdown, while the United States has just announced it would suspend travel from 26 European countries.

In the GCC region, several countries suspended airline services with countries where infections are high or rising at an alarming rate. The UAE suspended travel to and from Iran and most of China, while Kuwait said it would suspend all commercial flights to and from the country on Friday. Saudi Arabia also halted flights with several countries, including the UAE.

Growing by the day

According to Jameel Ahmad, global head of currency strategy and market research at FXTM, said the risk of a global recession is growing by the day as fears over the coronavirus intensify and new cases are being reported each day.

“Initially, I did expect that the global economy would be able to narrowly miss a recession based on the majority of the virus spread standing in China and although that was already big enough concern to consider, the penetration that virus has bought to Europe and the United States over the past two weeks significantly raises the flag that this can end in a world recession,” Ahmad told Zawya.

He said until the public is assured that the spread of the virus has been contained, the probability of a global recession will still increase “near daily.”

According to Raghu Mandagolathur, senior vice president for research at Kuwait Financial Centre, the likelihood of a global recession increases as more countries and people get affected.

He noted that businesses around the globe are already feeling the pinch and the financial markets have started to price in its potential effect on economic growth. 

“Whether it would cause a global recession, (two quarters of negative GDP growth) depends on how long the spread lasts until it is contained,” Mandagolathur told Zawya.

Among the economies, China is expected to witness a negative growth in the first three months of 2020, while countries in the Eurozone are also likely to experience the same.

“However, the U.S. economy is in much stronger footing, making it less likely to witness negative growth. Central banks around the world have less firepower left to intervene and spur economic growth if the spread isn’t contained very soon,” he added.

How will GCC economies fare?

If a global recession is inevitable, then no country will be spared, including the Gulf Cooperation Council (GCC) states.

“Due to the geographic location of the UAE and the number of events held in the GCC, of the risks it will face is that less growth elsewhere can bring less investments into the region,” said Ahmad.

However, he implied that the economies in the region, as well as in South Asia, might come out of the crisis faster than its global peers, given how they “came out of the shadow of the global financial crisis” in 2007 to 2008 and became key emerging markets.

“Hopefully, a cure will be found or the virus can be contained within months, and this would raise hope of a recession becoming a short one in technical terms, but not like the scars that are still left from the global crisis some twelve years ago,” said Ahmad.

“So, it would be the likes of Europe, South Africa and Japan that would be the most hit as these economies are already experiencing very marginal economic growth across recent years,” he added.

S&P Ratings said on Wednesday that the outbreak will have a widespread impact on the GCC states, affecting the hospitality, real estate, banking and export sectors.

(Reporting by Cleofe Maceda; Editing by Seban Scaria)

Cleofe.Maceda@refinitiv.com

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