EIU lowers global growth forecast for 2020 amid coronavirus scare

The Economist Intelligence Unit has revised downwards its global growth forecast for 2020 to 2.2 per cent, from 2.3 per cent previously, citing new risks that have emerged following the novel coronavirus outbreak in China.

The virus originated in Wuhan, a city of around 11.3 million people in central Hubei province, China, and has spread to most provinces in mainland China and overseas.

"The 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 Economist Intelligence Unit (EIU) said in a report.

Global growth was sluggish throughout 2019 amid trade tensions, a sharp deceleration in real GDP growth in the US, China and India and political uncertainty in a number of EU countries.

In addition, since the start of 2020, concerns related to coronavirus have increased threats to global growth, it said.

Noting that the virus is a "threat" for global growth, the EIU has revised China's growth downwards.

"On the assumption that the spread of the virus will be under control by end-March, we are lowering our real GDP forecast for China in 2020 to 5.4 per cent, from 5.9 per cent previously," The EIU said in a report.

The Economist Intelligence Unit's baseline scenario is that the public health emergency within China will be under control by end-March.

"The suggested case fatality rate had stabilised at 2.2 per cent as at February 1; nevertheless, the risk of virus mutation and of heightened transmission during the post-Chinese New Year travel period and strains on the Chinese healthcare system are grounds for concern," The EIU said.

The EIU was bullish about India growth forecast, provided the coronavirus epidemic does not spread to India.

"In Asia, we believe that India and Japan, respectively, recorded the best and the worst rates of quarterly growth among G7 and BRICS countries in October-December," it noted.

The report further said, "a series of government stimulus measures, coupled with a low-interest-rate environment, are likely to spur demand and investment in 2020 and to cause a rebound in full-year real GDP growth, to 6.1 per cent (up from an estimated 4.9 per cent in 2019), provided that the coronavirus epidemic does not spread to India".

Adding a word of caution the report said, "there is a risk that the coronavirus will spread to countries that do not have the resources to implement robust quarantine policies".

This is based on the latest scientific studies and comparisons with a similar coronavirus outbreak (severe acute respiratory syndrome, or SARS) in 2002-03, it noted.

The report further noted that crude prices have lost about USD 10/barrel since mid-January, owing to coronavirus-related fears.

Following this, the EIU has revised its forecast for average oil prices in 2020 downwards, to USD 63/barrel (from USD 65/barrel previously).

"If conditions deteriorate, dated Brent Blend prices could dip by another USD 3-5 per barrel," the report noted.