World Economy May Shrink Because of Virus

PARIS (AP) — A global agency says the new coronavirus could make the world economy shrink this quarter, for the first time since the international financial crisis more than a decade ago.

In a special report on the impact of the virus, the Organization for Economic Cooperation and Development said Monday that the world economy is still expected to grow overall this year and rebound next year. But the OECD lowered its forecasts for global growth in 2020 by half a percentage point, to 2.4%, and said the figure could go as low as 1.5% if the virus lasts long and spreads widely.

In addition to the “considerable human suffering” the virus has wrought, with more than 3,000 deaths worldwide, the OECD said “Global economic prospects remain subdued and very uncertain.”

The last time world GDP shrank on a quarterly basis was at the end of 2008, during the depths of the financial crisis. On a full-year basis, it last shrank in 2009.

The OECD said China’s reduced production is hitting Asia particularly hard as well as companies around the world that depend on its goods.

It urged governments to act quickly to prevent contagion and restore consumer confidence.

The Paris-based OECD, which advises developed economies on policy, said the impact of this virus is much higher than past outbreaks because “the global economy has become substantially more interconnected, and China plays a far greater role in global output, trade, tourism and commodity markets.”

China’s viral outbreak has already disrupted global supply chains and cut business profits. As the disease spreads, economists worry about a graver scenario: that quarantines and greater caution among consumers will lead people to cancel travel plans, skip restaurant meals, avoid stores and stay home from work.

The European Union’s markets commissioner, Thierry Breton, estimated Monday that the virus has cost Europe $2.2 billion this year in tourism revenue alone, mainly because of the drop in number of Chinese tourists. Things are expected to get worse for Europe with the eruption of cases in northern Italy and the cancellation of events including the Venice Carnival.

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