What is a coronavirus?

Coronaviruses are a large family of viruses that are known to cause illness
ranging from the common cold to more severe diseases such as Middle East
Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome
(SARS).

Abstract

This report discusses the economic impact of the Coronavirus/COVID-19 crisis

across industries, and countries. It also provides estimates of the potential global
economic costs of COVID-19, and the GDP growth of different countries.

The current draft includes estimates for 30 countries, under different scenarios.

The report shows the economic effects of outbreak are currently being
underestimated, due to over-reliance on historical comparisons with SARS, or the
2008/2009 financial crisis.

At the date of this report, the duration of the lockdown, as well as how the
recovery will take place is still unknown. That is why several scenarios are used. In
a mild scenario, GDP growth would take a hit, ranging from 3-6% depending on
the country. As a result, in the sample of 30 countries covered, we would see a
median decline in GDP in 2020 of -2.8%. In other scenarios, GDP can fall more
than 10%, and in some countries, more than 15%.

Service-oriented economies will be particularly negatively affected, and have more

jobs at risk. Countries like Greece, Portugal, and Spain that are more reliant on
tourism (more than 15% of GDP) will be more affected by this crisis. This current
crisis is generating spill over effects throughout supply chains. Therefore, countries
highly dependent on foreign trade are more negatively affected. The results suggest
that on average, each additional month of crisis costs 2.5-3% of global GDP.

Keywords: economic crisis; recession; coronavirus; COVID-19; financial crisis;

financial impact.

Background: About COVID 19

As most people in the world are now acutely aware, an outbreak of COVID-19 was
detected in mainland China in December of 2019. As of this writing, every
continent in the world has been affected by this highly contagious disease, with
nearly a million cases diagnosed in over 200 countries worldwide.

The cause of this outbreak is a new virus, known as the severe acute respiratory
syndrome coronavirus 2 (SARS-CoV-2). On February 12, 2020, WHO officially
named the disease caused by the novel coronavirus as Coronavirus Disease 2019
(COVID-19).

Coronaviruses are a family of viruses that can cause mild to moderate upper-
respiratory tract illnesses such as the common cold, severe acute respiratory
syndrome (SARS) and Middle East respiratory syndrome (MERS).

COVID-19 likely originated in a “wet market” in Wuhan, China. A wet market

refers to a marketplace with vendors selling live animals such as cats, dogs,
rabbits, fish, and bats. The name “wet market” is a reference to the need to be
constantly washing the floors in these venues due to animal slaughter and to the
melting ice used to preserve the food.

The common denominator among those who caught the virus in China had some
level of exposure to the Huanan Seafood Market in Wuhan. Researchers believe
the new virus probably mutated from a coronavirus common in animals which
jumped over to humans in the Wuhan marketplace.

When an infected person coughs or sneezes, the new coronavirus may be

transmitted through expelled droplets. These droplets can enter a person’s system
through “contact routes,” such as the mouth, eyes, or nose. It is also possible for
the droplets to be inhaled into the lungs.

Contact with various surfaces is another means for contracting the virus. The
National Institutes of Health’s website states, “The virus that causes coronavirus
disease 2019 (COVID-19) is stable for several hours to days in aerosols and on
surfaces, according to a new study from National Institutes of Health, CDC, UCLA
and Princeton University scientists in The New England Journal of Medicine. The
scientists found that severe acute respiratory syndrome coronavirus 2 (SARS-CoV-
2) was detectable in aerosols for up to three hours, up to four hours on copper, up
to 24 hours on cardboard and up to two to three days on plastic and stainless steel.”
Global Economic Effects of COVID-19

Since the COVID-19 outbreak was first diagnosed, it has spread to over 190
countries and all U.S. states. The pandemic is having a noticeable impact on global
economic growth. Estimates so far indicate the virus could trim global economic
growth by as much as 2.0% per month if current conditions persist. Global trade
could also fall by 13% to 32%, depending on the depth and extent of the global
economic downturn. The full impact will not be known until the effects of the
pandemic peak. This report provides an overview of the global economic costs to
date and the response by governments and international institutions to address
these effects.

Economic Developments :

Between late February and April, 2020, financial markets from the United States to
Asia and Europe have been whipsawed as investors have grown concerned that
COVID-19 would create a global economic and financial crisis with few metrics to
indicate how prolonged and extensive the economic effects may be.32 Investors
have searched for safe-haven investments, such as the benchmark U.S. Treasury
10-year security, which experienced a historic drop in yield to below 1% on March
3, 2020.33 In response to concerns that the global economy was in a freefall, the
Federal Reserve lowered key interest rates on March 3, 2020, to shore up economic
activity, while the Bank of Japan engaged in asset purchases to provide short-term
liquidity to Japanese banks; Japan’s government indicated it would also assist
workers with wage subsidies. The Bank of Canada also lowered its key interest
rate. The International Monetary Fund (IMF) announced that it was making about
$50 billion available through emergency financing facilities for low-income and
emerging market countries and funds available through its Catastrophe
Containment and Relief Trust (CCRT).34Reflecting investors’ uncertainties, the
Dow Jones Industrial Average (DJIA) lost about one-third of its value between
February 14, 2020, and March 23, 2020, as indicated in Figure 3.

Expectations that the U.S. Congress would adopt a $2.0 trillion spending package
moved the DJIA up by more than 11% on March 24, 2020. From March 23 to
April 15, the DJIA moved higher by18%. Since then, the DJIA has moved
erratically as investors have weighed news about the human cost and economic
impact of the pandemic and the prospects of various medical treatments. For some
policymakers, the drop in equity prices has raised concerns that foreign investors
might attempt to exploit the situation by increasing their purchases of firms in
sectors considered important to national security. Ursula von der Leyen, president
of the European

Commission, urged EU members to better screen foreign investments, especially in

areas such as health, medical research, and critical infrastructure.35Similar to the
2008-2009 global financial crisis, central banks have implemented a series of
monetary operations to provide liquidity to their economies. These actions,
however, initially were not viewed entirely positively by all financial market
participants who questioned the use of policy tools by central banks that are similar
to those employed during the 2008-2009 financial crisis, despite the fact that the
current and previous crisis are fundamentally different in origin.

Economic Policy Challenges :

The challenge for policymakers has been one of implementing targeted policies
that address what had been expected to be short-term problems without creating
distortions in economies that can outlast the impact of the virus itself.
Policymakers, however, are being overwhelmed by the quickly changing nature of
the global health crisis that appears to be turning into a global trade and economic
crisis whose effects on the global economy are escalating. As the economic effects
of the pandemic grow, policymakers are giving more weight to policies that
address the immediate economic effects at the expense of longer-term
considerations such as debt accumulation. Initially, many policymakers had felt
constrained in their ability to respond to the crisis as a result of limited flexibility
for monetary and fiscal support within conventional standards, given the broad-
based synchronized slowdown in global economic growth, especially in
manufacturing and trade that had developed prior to the viral outbreak. The
pandemic is also affecting global politics as world leaders are cancelling
international meetings28 and some nations reportedly are stoking conspiracy
theories that shift blame to other countries.
 Modern DThe outbreak of pandemic Covid-19 all over the world has disturbed
the political, social, economic, religious and financial structures of the whole
world. World’s topmost economies such as the US, China, UK, Germany,
France, Italy, Japan and many others are at the verge of collapse. Besides,
Stock Markets around the world have been pounded and oil prices have fallen
off a cliff. In just a week 3.3 million Americans applied for unemployment and
a week later another 6.6 million people started searching for jobs. Also, many
experts on economic and financial matters have warned about the worsening
condition of global economic and financial structure. Such as Kristalina
Georgieva, Managing Director of International Monitory Fund (IMF),
explained that “a recession at least as bad as during the Global Financial Crisis
or worse”. Moreover, Covid-19 is harming the global economy because the
world has been experiencing the most difficult economic situation since World
War-II. When it comes to the human cost of the Coronavirus pandemic it is
immeasurable therefore all countries need to work together with cooperation
and coordination to protect the human beings as well as limit the economic
damages. For instance, the lockdown has restricted various businesses such as
travelling to contain the virus consequently this business is coming to an
abrupt halt globally.

Estimated Effects on Developed and Major Economies:

Among most developed and major developing economies, economic growth at the
beginning of 2020 was tepid, but still was estimated to be positive. Countries
highly dependent on trade—Canada, Germany, Italy, Japan, Mexico, and South
Korea—and commodity exporters are now projected to be the most negatively
affected by the slowdown in economic activity associated with the virus.164 In
addition, travel bans and quarantines are taking a heavy economic toll on a broad
range of countries. The OECD notes that production declines in China have spill
over effects around the world given China’s role in producing computers,
electronics, pharmaceuticalsand transport equipment, and as a primary source of
demand for many commodities.165 Across Asia, some forecasters argue that
recent data indicate that Japan, South Korea, Thailand, thePhilippines, Indonesia,
Malaysia, and Vietnam could experience an economic recession in 2020.166 In
early January 2020, before the COVID-19 outbreak, economic growth in
developing economies as a whole was projected by the International Monetary
Fund (IMF) to be slightly more positive than in 2019. This outlook was based on
progress being made in U.S.-China trade talks that were expected to roll back some
tariffs and an increase in India’s rate of growth. Growth rates in Latin America and
the Middle East were also projected to be positive in 2020. 167 These projections
likely will be revised downward due to the slowdown in global trade associated
with COVID-19, lower energy and commodity prices, an increase in the foreign
exchange value of the dollar, and other secondary effects that could curtail growth.
Commodity exporting countries, in particular, likely will experience a greater
slowdown in growth than forecasted in earlier projections as a result of a
slowdown on trade with China and lower commodity prices.

Conclusions:

The quickly evolving nature of the COVID-19 crisis creates a number of issues
that make it difficult to estimate the full cost to global economic activity. These
issues include, but are not limited to:

 How long will the crisis last?

 How many workers will be affected both temporarily and permanently?

 How many countries will be infected and how much economic activity will be

reduced?

 When will the economic effects peak?

 How much economic activity will be lost as a result of the viral outbreak?

 What are the most effective monetary and fiscal policies at the national and

global level to address the crisis?

 What temporary and permanent effects will the crisis have on how businesses

organize their work forces?

 Many of the public health measures taken by countries such asItaly, Taiwan,

South Korea, Hong Kong, and China have sharply impacted their economies
(with plant closures, travel restrictions, and so forth). How are the tradeoffs

between public health and the economic impact of policies to contain the spread

of the virus being weighed?