What would it take for COVID-19 to trigger a recession?

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There’s a lot doctors don’t know about COVID-19, including how many people with mild symptoms have escaped the official count of those who’ve contracted the disease.

Economists, who aren’t doctors, know even less about how the outbreak might play out.

But several of them now agree on one thing: the novel coronavirus may hit the global economy harder than the SARS epidemic did nearly two decades ago.

While BMO chief economist Doug Porter is not forecasting a recession, “certainly the risks are higher,” he said.

SARS was less contagious than the COVID-19 virus, which made it easier to isolate those with visible symptoms. This meant “cities experiencing outbreaks saw caseloads peak quickly and then descend,” Avery Shenfeld, chief economist at CIBC Capital Markets, wrote in a recent report.

In the end, SARS registered as a minor economic blip for both China, the epicentre of the epidemic, and Canada, where Toronto had, at one point, the largest number of cases outside of mainland China and Hong Kong.

This time, though, the new coronavirus could cause deeper and more lasting damage to the economy, according to Porter.

What could trigger an economic downturn for Canada is an outbreak of COVID-19 cases in North America on the scale of those recently seen in countries like Italy and Iran, Porter said.

“If we were talking about a moderate [economic] downdraft in the rest of the world outside of North America, I think North America actually could sustain some growth in that environment,” Porter said. “But it would be a different story if we were facing our own outbreak here.”

That scenario, while not imminent, looks increasingly possible.

On Tuesday, officials at the U.S. Centers for Disease Control and Prevention (CDC) told reporters data on the virus’ spread over the past week had heightened the agency’s expectations of transmission within the United States.

“Disruption to everyday life might be severe,” the CDC’s Dr. Nancy Messonnier cautioned.

In some countries coping with the highest numbers of registered COVID-19 cases, the disease may have already nudged weak local economies into recession.

“Italy has been struggling with next to no growth for years,” Porter said.

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The country has seen its new coronavirus cases spike from three to more than 300 in the span of a few days, with most of the infections clustered around Milan, the country’s economic powerhouse.

Japan was already “arguably in recession,” Porter said. The country has been struggling with the effect of the U.S.-China trade war as well as the impact of a national sales tax hike.

And China, ground zero of the current outbreak, will likely see an outright contraction in the first three months of the year, although the country’s official figures may say otherwise, Porter said.

Still, Canada may emerge relatively unscathed if the U.S. economy keeps chugging along, Porter said.

What would happen if North America did experience its own COVID-19 surge remains difficult to predict, according to Shenfeld.

Part of the challenge is a lack of precedent to turn to for useful historical lessons.

Rather than looking at SARS, economists are now thinking the 1918 Spanish flu may offer a better template for charting the course of COVID-19, which seems to be spreading in flu-like fashion.

But trying to simulate the modern-day impact of something that happened more than a century ago is tricky, not to mention that the influenza outbreak overlapped with the end of the First World War, which “complicates” the data, according to Shenfeld.

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Shenfeld quotes one U.S. study that estimated that a flu pandemic might shave between one and 4.25 percentage points off U.S. GDP growth, with the higher end of the range reflecting an outbreak as severe as the 1918 flu.

A Canadian study, on the other hand, found that even something like the Spanish flu would only reduce annual GDP by a mere half of a percentage point at most. That estimate, though, leaves out any indirect economic impacts, as well as the effect on supply chains, Shenfeld noted.

In the real world, COVID-19 has thrown a wrench in the complicated supplier networks of a number of multinational companies.

Apple has warned investors that it won’t meet its second-quarter financial guidance because the outbreak has cut the production of iPhones. Automaker Hyundai has halted production in its home country of South Korea, which now counts nearly 1,000 cases of the disease. Meanwhile, airlines, cruise ship lines and other companies related to the tourism industry have seen their stock price plummet.

Then there’s the fear factor, which affects both consumers and investors.

Financial markets, which initially shrugged off worries about the virus, took a dive after news of a sudden spike in cases outside of China.

In the U.S., the Dow Jones Industrial Average and the S&P 500 tumbled three per cent on Tuesday in their fourth straight day of losses as investors offloaded risky assets while struggling to gauge the economic impact.

In Canada, the S&P/TSX Composite Index shed 2.19 per cent, its worst one-day tumble in four years.

Still, even if COVID-19 were to trigger a recession in Canada, it would likely be a short-lived one, Porter said.

Recessions normally cause permanent layoffs, which prompt people to pull back on spending, which then hurts business in a vicious cycle that feeds on itself.

Pandemic-induced recessions, on the other hand, cause most people to miss work only temporarily.

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