The OECD chief economist assessed the economic risks of the coronavirus outbreak. If contained to China, it could reduce world GDP by 0.5% in 2020, but a wider spread could lower GDP by 1.5% as demand falls in Asia, Europe, and North America. Government responses like increased health spending, tax relief for affected industries, and coordinated fiscal and monetary stimulus across countries could help offset economic losses.

1. Laurence Boone
OECD Chief Economist
2 March 2020
OECD INTERIM
ECONOMIC OUTLOOK
Coronavirus:
the world economy at risk
Access the underlying data :oe.cd/ieo-03-2020-handout-data
http://www.oecd.org/economy/outlook/
ECOSCOPE blog : https://oecdecoscope.blog/

2. 2
GDP growth
%, year-on-year
Source: OECD Economic Outlook database.
The economic situation was stabilising before
Covid-19
0
1
2
3
4
5
6
7
World G20
Advanced
US Euro area Japan G20
Emerging
China

3. 2019 2020 2021 2019 2020 2021
World 2.9 2.4 3.3 G20 3.1 2.7 3.5
Australia 1.7 1.8 2.6 Argentina -2.7 -2.0 0.7
Canada 1.6 1.3 1.9 Brazil 1.1 1.7 1.8
Euro area 1.2 0.8 1.2 China 6.1 4.9 6.4
Germany 0.6 0.3 0.9 India1
4.9 5.1 5.6
France 1.3 0.9 1.4 Indonesia 5.0 4.8 5.1
Italy 0.2 0.0 0.5 Mexico -0.1 0.7 1.4
Japan 0.7 0.2 0.7 Russia 1.0 1.2 1.3
Korea 2.0 2.0 2.3 Saudi Arabia 0.0 1.4 1.9
United Kingdom 1.4 0.8 0.8 South Africa 0.3 0.6 1.0
United States 2.3 1.9 2.1 Turkey 0.9 2.7 3.3
3
OECD Interim Economic Outlook projections
Note: Difference in percentage points based on rounded figures. The European Union is a full member of the G20, but the G20 aggregate only includes countries that are members in their own right.
1. Fiscal years starting in April.
Source: OECD Economic Outlook database; and OECD calculations.
Real GDP growth
%, year-on-year. Arrows indicate the direction of revisions since the November 2019 Economic Outlook
3
downward by 0.3 pp and more downward by less than 0.3 pp upward by less than 0.3 ppno change upward by 0.3 pp and more

4. 46
48
50
52
54
56
58
2017 2018 2019
Manufacturing export orders
Manufacturing all orders
Services orders
Manufacturing appeared to have bottomed out
4Note: RHS: The last data point is February 2020.
Source: OECD Main Economic Indicators database; Markit; and OECD calculations.
Global industrial production growth New orders in advanced economies
PMI
0
1
2
3
4
5
6
2016 2017 2018 2019
% Quarterly Year-on-year

5. Employment growth was also stabilising
5
Note: Quarterly series are annualised. LHS: Data for retail sales are used in the majority of countries, but monthly household consumption is used for the United States and the monthly
synthetic consumption indicator is used for Japan. Data for India are unavailable.
Source: OECD Economic Outlook 106 Database.
OECD employment growthGlobal retail sales growth
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2012 2014 2016 2018 2019
Quarterly Year-on-year%
0
1
2
3
4
5
6
2016 2017 2018 2019
% Quarterly Year-on-year

6. ASSESSING THE ECONOMIC
EFFECTS OF COVID-19
6

7. 7
Quarantines Factory closures Loss of confidence
Travel bans and
restrictions
Cutbacks in service
provisions
Business and tourism
travels
Closure of public
places
Supply chain
disruption
Education and
entertainment services
Containment
measures
Supply Demand
Economic channels

8. Covid-19 will have a larger economic impact than
the SARS episode in 2003
8
China is more integrated in the global economy
Share of China in world
Note: LHS: Estimates for global tourists are based on 2017 instead of 2019; estimates for global FDI are based on 2005/2018 instead of 2002/2019. Share of global GDP and trade in constant US
dollars. Share of global FDI in current US dollars.
Source: OECD Economic Outlook database; OECD Global FDI in figures (2019); World Bank Group (2019), Commodity Markets Outlook, October; and OECD calculations.
China is a major commodity importer
Share of China in global demand for selected commodities
0
2
4
6
8
10
12
14
16
18
Global GDP Global trade Global FDI Global tourists
2002 2019%
0
10
20
30
40
50
60
Aluminium
Copper
Nickel
Zinc
Lead
Natural
rubber
Crudeoil
2000 2018%

9. The drop in Chinese travellers will hit hard
9Note: Data for Singapore and Thailand are for spending by foreign tourists in the country. Data for Hong Kong-China are for 2017.
Source: OECD Economic Outlook database; OECD Trade in Services by Partner Country; Eurostat; Singapore Tourism Board; and Ministry of Tourism and Sports, Thailand.
Travel services to China and Hong Kong-China, as a share of GDP
2018
0
1
2
3
4
5
6
7
8
HKG THA
%
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
NZL AUS SGP ISL JPN CAN HUN FRA CHE USA GBR ITA NLD
China Hong Kong - China%

10. Supply chains are vulnerable
10
Value added trade flows between China and key partners
Note: 2015 data. *DAE refers to Dynamic Asian Economies: Chinese Taipei; Hong-Kong, China; Malaysia; Philippines; Singapore; Thailand and Vietnam.
Source: OECD Trade in Value Added database; and OECD calculations.
Value added export dependence to China,
% of country’s sector output
Value added import dependence from
China, % of country’s sector output
Share of world value
added by the sector
Computers, electronics and electrical equipment sector Transport equipment sector

11. Contained outbreak scenario
The fall in Chinese demand will have
important costs
11
Note: This simulation shows the impact of a 4% fall in domestic demand in China and Hong Kong-China in 2020Q1 and a 2% decline in 2020Q2, plus declines of 10% in global equity and non-food
commodity prices in the first half of 2020, and a 10 bps rise in investment risk premia in all countries in the first half of 2020. All shocks are assumed to fade away gradually by early 2021.
Source: OECD calculations using the NiGEM global macroeconomic model.
0.5%
World GDP in 2020
% difference from baseline and contributions in % pts
Full-year impact on 2020 world GDP
-0.8
-0.7
-0.6
-0.5
-0.4
-0.3
-0.2
-0.1
0.0
Q1 Q2 Q3 Q4
Demand Equity + Commodity prices Uncertainty Total

12. 12
Costs are much higher if the epidemic spreads
through Asia-Pacific and the Northern Hemisphere
-2.0
-1.6
-1.2
-0.8
-0.4
0.0
Q1 Q2 Q3 Q4
Demand Equity + Commodity prices Uncertainty Total
Full-year impact on 2020 world GDP
1.5%
Downside scenario
World GDP in 2020
% difference from baseline and contributions in % pts
Note: This simulation shows the impact of a 4% fall in domestic demand in China and Hong Kong-China in 2020Q1 and a 2% decline in 2020Q2, plus a 2% domestic demand fall in most other Asia-
Pacific countries and advanced Northern hemisphere countries in 2020Q2 and 2020Q3,plus declines of 20% in global equity and non-food commodity prices in 2020, and a 50 bps rise in investment
risk premia in all countries in 2020. These shocks are assumed to decline gradually through 2021.
Source: OECD calculations using the NiGEM global macroeconomic model.

13. 13
Regional impact of downside scenario
Contributions to change in world GDP in 2020, % pts
The decline in global growth hitting all affected
regions
Note: This simulation shows the impact of a 4% fall in domestic demand in China and Hong Kong-China - in 2020Q1 and a 2% decline in 2020Q2, plus a 2% domestic demand fall in most other Asia-
Pacific countries and advanced Northern hemisphere countries in 2020Q2 and 2020Q3, plus declines of 20% in global equity and non-food commodity prices in 2020, and a 50 bps rise in investment
risk premia in all countries in 2020. These shocks are assumed to decline gradually through 2021. Commodity exporters include Argentina, Brazil, Chile, Russia, South Africa and other non-OECD oil-
producing economies.
Source: OECD calculations using the NiGEM global macroeconomic model.
-2.0
-1.8
-1.6
-1.4
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
Q1 Q2 Q3 Q4
China Other Asia-Pacific Europe North America Commodity exporters Rest of the World World

14. Loss of confidence can intensify financial stress
14
0
200
400
600
$800 Bn.
2000 '05 '10 '15 '19
China Other emerging
Corporate credit defaults could rise
Corporate bond issuance in EMEs, 2018 USD billion
Financial volatility has increased
Note: VIX refers to the Chicago Board Options Exchange Market Volatility Index. MOVE refers to the Merrill Lynch Option Volatility Estimate index.
Source: OECD (2019), Corporate Bond Markets in a Time of Unconventional Monetary Policy; Balestra (2018); Thompson Reuters; and OECD calculations.
0
20
40
60
80
100
120
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Implied oil price volatility VIX MOVE

15. GOVERNMENTS MUST ACT NOW
15

16. 16
Increase resources to
the health sector
Reduce or delay tax
payments for most
affected sectors
Expand liquidity to
banks
Step up temporary
cash transfers to
vulnerable households
Expand liquidity and
availability of credit to
firms
Ensure monetary
policy responds to
extreme market
conditions
Expand short-time
work schemes
Reduce public sector
arrears to firms
Let automatic
stabilisers fully work
and boost public
investment
People Firms Macro policy
Policy options to address economic
implications

17. 17
GDP in median G20 economy
% difference from baseline and contributions in % pts
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Year 1 Year 2 Year 3 Long-run
Structural Fiscal Monetary Confidence Combined
Note: Scenario with all G20 economies simultaneously undertaking changes to fiscal, monetary and structural policies. Countries undertake additional debt-financed public expenditure of 0.5% of GDP
for three years, monetary policy becomes more accommodative in economies with policy interest rates above zero (all countries excluding Japan, France, Germany and Italy) and productivity-
enhancing structural reforms raise total factor productivity by 1% after five years. Confidence is modelled by a 50 basis point reduction in investment and equity risk premia for two years.
Source: OECD calculations using the NiGEM global macroeconomic model.
Policy coordination would provide the
most effective stimulus

18. Key messages
18
Covid-19 has hit people and livelihoods
• Covid-19 (coronavirus) has disrupted people’s life and the global economy
• Activity has slowed dramatically in China on the back of containment measures
• Negative spillovers via tourism, supply chains, commodities, confidence are growing
The spread of coronavirus could intensify a global downturn
• Weakened by trade and political tensions, the global economy is vulnerable
• Containment measures and lower confidence would slow affected economies
• Pressure on industries with structural difficulties (autos) or that are large employers (tourism)
Governments cannot afford to wait
• Increase resources to the health sector and support the most vulnerable
• Ensure liquidity buffers for affected industries worldwide
• Coordinate health response, monetary and fiscal support across countries