Moody’s cuts SA’s growth forecast on the back of Coronavirus

PUBLISHED: Fri, 06 Mar 2020 17:41:25 GMT

By Moody’s

Summary »
The global spread of the coronavirus is resulting in simultaneous supply and demand shocks. We expect these shocks to materially slow economic activity, particularly in the first half of this year. We have therefore revised our 2020 baseline growth forecasts for all G-20 economies. We expect these countries, as a group, to grow by 2.1% in 2020, 0.3 percentage point lower than our previous forecast. We have lowered our 2020 forecast for China’s growth to 4.8% from our previous estimate of 5.2%. For the US, we now expect real GDP to grow by 1.5% in 2020, down from our previous estimate of 1.7%.
» The full extent of the economic costs will be unclear for some time. Fear of contagion will dampen consumer and business activity. The longer it takes for households and businesses to resume normal activity, the greater the economic impact. » Global recession risks have risen. The longer the outbreak affects economic activity, the demand shock will dominate and lead to recessionary dynamics. In particular, a sustained pullback in consumption, coupled with extended closures of businesses, would hurt earnings, drive layoffs and weigh on sentiment. Such conditions could ultimately feed self-sustaining recessionary dynamics. Heightened asset price volatility would magnify the shock.
» Fiscal and monetary policy measures will likely help limit the damage in individual economies. Policy announcements from fiscal authorities, central banks and international organizations so far suggest that policy response is likely to be strong in affected countries. The US Federal Reserve’s decision to cut the federal funds rate by 50 basis points and the announcements from the European Central Bank and the Bank of Japan assuring policy support will limit global financial market volatility and partly counter the tightening of financial conditions.

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