IMF sees V-shaped virus effect on China with 'moderate' fallout for global economy

The outbreak of the coronavirus will probably force a sharp drop in the Chinese economy, which can make its recovery equally rapid and assist in keeping the overall impact on global growth at a moderate level, the International Monetary Fund managing director Kristalina Georgieva said.

There is absolutely no definitive data to make an accurate projection and the IMF is working with a scenario and “not with a precise number”, she said in Riyadh where G20 finance and central bank governors are meeting. The IMF also recognises other scenarios, where the impact of the outbreak could possibly be substantially more, she noted.

“The most likely scenario is a V-shaped impact of the virus, when a very abrupt, significant drop in China will be accompanied by very rapid recovery and the impact on all of those other world growth will be moderate,” she said.

The quicker the spread of the epidemic is contained the softer the impact will be on the global economy, she also said in a blog post on the IMF website on Tuesday.

The deadly coronavirus has so far claimed a lot more than 2,200 lives and infected more than 75,500 people on mainland China alone. The Chinese economy grew at the slowest pace in three decades this past year on the trunk of a trade war with the US. The economy is likely to slow further this season as the infection outbreak paralysed factories and disrupted global supply chains.

The quantity of deaths by the most recent strain of the coronavirus have surpassed those from the SARS in 2002-03. Sars killed 774 people and infected almost 8,100 persons in 26 countries over eight months, in line with the World Health Organisation.

Ms Georgieva cautioned against comparing the new virus, Covid-19, with the Sars epidemic in 2002, China only represented 8 per cent of the global economy during SARS, while it makes up about about 19 per cent of global GDP now.

“What we know is that its an epidemic that is clearly a not the same as SARS from 2002. The Chinese economy is different from what it was then …. and we also unfortunately know that today growth is much more fragile than it had been in 2002,” she said. “Those people who are comparing it with SARS are taking us to a rosier place.”

You may still find many unknowns about the new strain of the coronavirus. It remains to be seen how extensively the epidemic will grow beyond China or how quickly it'll be contained and since it is being contained, from what extent will it impact the world economy.

“The broader message from the virus is that people do live in a shock-prone world and, therefore, we must become accustomed to more uncertainty,” she said.

Ms Georgieva needed a synchronised policy response to minimise the impact of the virus and said although the monetary policy space is limited it isn't zero.

The world, she said, this past year sunk into a synchronised slowdown as 90 per cent of the world economy “slowed in sync”. The central banks acted in sync aswell and 49 of them globally cut their interest rates to boost growth, she noted.

“Several countries have fiscal space to do something …. and China is among these countries,” she said.