Bloomberg Businessweek March 2, 202023PHOTOGRAPH BY CHIARA GOIA FOR BLOOMBERG BUSINESSWEEKTHE BOTTOM LINE Economists are mining history to figure out
the economic hit from a coronavirus pandemic. An episode on the
scale of the Spanish flu could erase 5% of global GDP.alarm about the novel virus, yet at a Feb. 24 press
conference Director General Tedros Adhanom
Ghebreyesus stopped short of labeling the situa-
tion a pandemic.
Nevertheless, the protracted shutdown of
Chinese factories and the spread of the virus to
South Korea, Iran, and Italy raise the specter of
much greater death and disruption.
The virus risks tipping Italy into a recession that
could hurt the rest of Europe, too. South Korea’s
economy is being buffeted, with consumer confi-
dence plunging to its lowest level in five years. In
Iran, the virus is putting further strains on an econ-
omy already being sapped by U.S. sanctions. The
U.S. Centers for Disease Control and Prevention
warned Americans to prepare for a coronavirus out-
break at home.
UBS Group AG Chairman Axel Weber is already
far more pessimistic than the IMF, warning that
global growth will experience a massive drop,
from 3.5% to 0.5%, and that China will contract
in the first quarter. “The much larger downside
risk is that this continues to be a problem,” theformer president of Germany’s central bank told
Bloomberg TV in Riyadh on Feb. 22, where Group
of 20 finance chiefs hinted at collective worries
about the dangers of the virus.
How to assess the risk is complicated by doubt
over how far the coronavirus will spread. In an anal-
ysis that predates the current outbreak, the World
Bank calculated that a destructive pandemic could
result in millions of deaths and pointed to how even
conservative estimates suggest such an experience
might destroy as much as 1% of global GDP. A disas-
trous health crisis akin to the 1918 Spanish flu, which
may have killed as many as 50 million people, could
cost 5% of global GDP, the Washington-based lender
said in a 2015 report.
A March 2016 paper co-authored by former
U.S. Treasury Secretary Lawrence Summers lik-
ened the annual financial impact of a pandemic flu
to the long-term yearly cost of global warming. It
calculated that if pandemic deaths were to exceed
700,000 per year, the combined cost to the world
economy because of illness and lives lost prema-
turely, along with unrealized earnings, would total
0.7% of global income.
If the current coronavirus leads to a pandemic,
Oxford Economics suggests the impact may cost the
equivalent of 1.3% of global output, with recessions
in both the U.S. and euro zone in the first half of- It describes such a scenario as a “short but
very sharp shock on the world economy.”
Aside from containment of the disease, one miti-
gating factor—and a major unknown for economists
modeling the outcome—will be the actions of cen-
tral banks and governments to cushion the effects.
“When we entered the year we certainly didn’t think
that central banks would be as eager to cut interest
rates and to become even more supportive,” says
Nannette Hechler-Fayd’Herbe, head of global eco-
nomics and research at Credit Suisse Group AG.
“Now the answer is going to be quite dependent on
how the coronavirus spreading is going to continue.”
Yet for Drew Matus, chief market strategist at
MetLife Investment Management, monetary pol-
icy alone would probably be insufficient. “My guess
would be you actually can’t solve it with interest
rates,” he told Bloomberg TV on Feb. 24. “People
are worried about their families, worried about
their health—25 basis points doesn’t do it in terms
of encouraging people to go out there and spend.”
�Craig Stirling, Enda Curran, and Catherine Bosley,
with Francine Lacqua, Tom Keene, Joanna Ossinger,
and Manus Cranny0
◀ Milan’s Piazza della
Scala. The outbreak
could tip Italy into
recession“The market
is pricing in
a significant
slowdown
in GDP and a
10% impact on
earnings”Penciling Out a Pan demic