EIU Trims Global Growth Forecast Due to Coronavirus

The Economist Intelligence Unit (EIU), which is well-respected for its economic outlook reports, recently published a report on the global forecast for growth in Q4 of 2019. The report said that economic activity across the globe, both for industrialized and developing countries, was projected to be weak. The report blamed the malaise on global trade tensions, such as the U.S-China trade war, as well as a fall in GDP growth in the U.S. and China, the world’s largest two economies.

In another report released on Wednesday, the EIU revised downwards its global growth forecast in 2020 to 2.2 percent, down from its previous forecast of 2.3 percent. Not surprisingly, the reason for the lower projection was the China coronavirus. The report noted that “Chinese authorities are taking unprecedented quarantine measures to halt the spread of the pathogen, which is likely to have consequences on the global economy”.

The EIU has slashed its 2020 forecast for China’s growth from 5.9 percent to 5.4 percent, on the assumption that the coronavirus will be contained by mid-March. It remains to be seen if that scenario is overly optimistic; if so, the drop in Chinese growth could be even sharper. If the EIU estimate is accurate, the plunge in Chinese GDP next year is sure to have economic ramifications which will be felt worldwide.

In the worst-case scenario, the coronavirus outbreak could trigger a global recession. Already, countries with extensive trade links with China, such as Australia and Japan, are feeling the bite in their tourist and services industries. Multinational plants in China have had to lay off workers and suspend or reduce operations, and the disruption to the Chinese economy has resulted in falling oil prices. Investors will be hoping that the coronavirus can be contained quickly so that China, the number two economy in the world, can get back on its economic feet.