In: Economics
Discuss the current 2020 risks in World Economy? please clearly and 500 words
Andrew Jim Moore
Roughly 85,000 people have been infected worldwide since the
January outbreak, with a increasingly growing share of these
outside of China. The epicenter of the epidemic was in the province
of Hubei, which accounts for around 4.5% of China's production, but
the consequences were soon evident across China with attempts to
monitor the spread of the virus leading to wide-ranging
restrictions on passenger travel, labor mobility and working
hours.
The indicators available for February point to substantial declines
in production within China, and the preliminary indications of a
minor improvement towards the end of the month seem unlikely to be
sufficiently rapid to prevent output rates in the first quarter
Businesses around the world have quickly felt production declines in China, given China's key position in global supply chains as a manufacturer of intermediate products, particularly in computers, electronics, pharmaceuticals and transportation equipment, and as the primary source of demand for many commodities. Temporary supply shortages can be addressed with the use of inventories, but stock rates are lean due to just-in-time production processes and substitute sources for specific parts can not be easily accessed. A prolonged delay in restoring full production in affected regions would add to the weakness in manufacturing sectors in many countries.
The prospects for growth are rather shaky. The forecasts are based on the assumption that China's epidemic peaks in the first quarter of 2020, with a gradual rebound through the second quarter supported by substantial easing of domestic policy. This would depress global GDP growth in the early part of the year along with the recent marked deterioration in global financial conditions and increased uncertainty, probably even bringing it below zero in the first quarter of 2020. Even if the COVID-19 effects slowly fade over 2020 as predicted, illustrative simulations indicate that global growth could be reduced this year by as much as 1⁄2 percentage point
Household spending continues to be driven by improving conditions on the labor market, but slowing job development is likely to weigh on income growth and persistent weak productivity growth and investment will test the strength of real wage gains. Uncertainty is expected to remain high, with very poor trade and investment. The fall in the perception of financial market risk and reductions in business travel and tourism are also likely to hinder growth in demand for a while.