Global economy will be permanently hit: Moody's

March 23, 2020 11:34

The rapid spread of the coronavirus in the last two weeks, widespread business closures and unprecedented restrictions on social interactions will result in a permanent hit to global economic activity this year, according to Moody's Investors Service.

A sharp contraction of the global economy, at least in the second quarter, appears imminent, it said in its latest special series 'Credit Risks in Turbulent Times.

"Uncertainty will remain for at least several months as to how long it will take to contain the spread of the virus and how businesses and households will cope with the resulting financial losses. Financial market volatility is at levels that last occurred during the global financial crisis," said Moody's.

"And fear about the huge hit to business activity is contributing to extreme risk-off sentiment, resulting in the repricing of equities, commodities, bonds and currencies."On the real economy side, recently released data from China offers a glimpse into the impact of the unfolding consumption shock. The official data suggests a sharp contraction relative to last year in retail sales (minus 20.5 per cent), industrial production (minus 13.5 per cent), fixed asset investment (minus 24.5 per cent) and job losses (5 million) in January and February.Outside Asia, evidence of costs to the real economy is becoming evident in Italy, France, Germany, Spain, Britain and the United States."

"As business grinds to a halt, big and small firms are starting to lay off workers temporarily in an attempt to cut costs," said Moody's.The short-term economic costs are likely to be steep the world over.

In advanced and emerging market countries alike, closures are crippling both the traded and non-traded sectors of the real economy.

Moody's said the long-term consequences will depend not only on the depth and duration of the hit to economic output but on whether it will cause lasting damage to balance sheets of households and businesses.

Without policy support, many businesses that depend on a constant stream of revenue will close and lay off their workers.

Image: A message on the marquee of Paramount Theater during the outbreak of coronavirus disease (COVID-19) in Seattle, Washington on Friday.

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