The current Coronavirus outbreak will have a severe and negative impact on the worldwide economy in 2020. What we know so far (i.e. 25 March 2020)?

This article is an update of: bdp Research: The impact of Coronavirus to the world economic development

Further Economic impact after Italy Lockdown and Black Monday 2020

On March 9th 2020, global stock markets suffered from the highest fall since 2008, during the Great Recession. The reasons are a combination of the COVID-19 pandemic and the Russia–Saudi Arabia oil price war, which dragged down the Brent Crude Oil price over 33%. In the US, a circuit breaker was triggered after stocks dropped sharply, halting trade for 15 minutes. The Dow dropped 2,013.7 points — 7.79% — as Boeing, Apple, Goldman Sachs and Caterpillar cut the index by at least 100 points each. The Dow ended the day at 23,851.02 and represented its single-worst day since October 15th, 2008, when it fell 7.87%. The S&P 500 plunged 7.6% to 2,746.56 as investors punished financials and energy stocks. Energy names in the S&P 500, including Exxon Mobil, Hess and Marathon Oil, finished the day down more than 20%. Financial stocks ended down more than 10%. The equity benchmark suffered its worst day since December 1st, 2008. The Nasdaq Composite fell 7.29% to end the day at 7,950.68. 1 To combat the economic recession, the president of the US, Donald Trump, purposed a payroll tax cut, which has been tried in the past under Obama during the financial crisis in 2008, in order to stimulate the economic growth. However, there are comments claim that the studies conducted since the financial crisis have found that small, gradual tax cuts were less effective at stimulating the economy than larger lump-sum payments. 2 The current Trump administration was also severely criticized by media and opponents, due to his incompatibility on several issues about Coronavirus, including refuse to test patients who have symptoms, which can lead to his administration become unstable if the confirmed cases of Coronavirus keep increase.   

On March 1st, Italy decided to put €3.6bn into its economy to mitigate the impact of coronavirus outbreak, and the Italian economic premier admitted that the government would introduce tax credits for companies that reported a 25 per cent drop in revenues, as well as tax cuts and extra cash for the health system. 3 On March 9th, the Italian government issued the order to lockdown the whole country that banned its 62 million people from all travel unless certified as justified on professional or health grounds and asked people to stay mainly at home. The Prime Minister of Italy, Giuseppe Conte, claimed that "Industries can stay open, but with strict measures in place, as well as essential services such as banks. Transport will be guaranteed". On Wednesday, March 11th, the Italian government has ordered all shops, bars and restaurants across the country to close after the country's death toll from the coronavirus outbreak rose by 31% in the space of 24 hours to a total of 827. 4 At the same time, Italian government announced that the mortgage payments will be suspended across Italy as part of measures to soften the economic blow of coronavirus on households. Italy's banking lobby group ABI said lenders would offer debt holidays to small firms and families, and some small businesses and families were given time off during the financial crisis before having to repay. In 2019, the total GDP was approximately at the same level as it was in 2004 while it was still 4% below the GDP level in 2007, just a year before the financial crisis. Unemployment, especially among young people, is also a persistent problem, which the unemployment rate among under-25s is 28.9%, ranked as the 3rd highest after Greece and Spain. 5

In South Korea, its central bank said the economic impact of the coronavirus would likely be greater and last longer than those of other epidemics seen in the past. The central bank has lowered the South Korean GDP growth rate to 2.1 per cent from the previous 2.3 per cent in 2020. 6 Meanwhile, South Korea's composite consumer sentiment index stood at 96.9 for February, down 0.4 from the previous month according to the data from the OECD, which was the sharpest decline among 25 OECD member nations. 7 A reading below the benchmark 100 means pessimists outnumber optimists, and it is expected that this number will keep decrease in March and April. Another risk that can potentially affect the economy of South Korea in the 2nd quarter of 2020 is its parliamentary election on April 15th. Although the Gallup Korea and Realmeter polls show that the governing party will win the election with 8 to 16 points lead, there are concerns that the ruling party may lose more local seats than it may gain through proportional representation due to its joining the coalition and some voters' dissatisfaction to the government response on current coronavirus epidemic.

Update on Mar 25:

On March 15th, The Federal Reserve announced that its benchmark interest rate would be slashed to near zero and it would buy $700 billion in Treasury and mortgage-backed securities in response to the new coronavirus pandemic. Other policies of The Federal Reserve included offering nearly unlimited amounts of short-term lending to 24 major banks, known as primary dealers, that function as the Fed’s exclusive counterparties when trading in financial markets. 9  The interest rate is now again back to the 0% level after four years and four months when it was at its highest point in 2019 from January to the end of July. In details, $500 billion in these $700 billion securities that purchased by The Federal Reserve are U.S. government bonds and the rest $200 billion are bonds issued by Fannie Mae and Freddie Mac. 10

The reason for Fannie and Freddie were involved in this bond purchasing is that both allowed the homeowners who have lost income or their jobs because of the coronavirus outbreak to get some relief. Depending on their situation, many of them will be eligible to have their mortgage payments reduced or suspended for up to 12 months. 11 The move covers about half of all home loans in the U.S. that are guaranteed by Fannie and Freddie. According to the president of Federal Reserve Bank of St. Louis, It is possible to say that the U.S. unemployment rate can skyrocket to 30%, and the reduction of 50% GDP is possible in the second quarter. The policy of The Federal Reserve’s plan according to the study of Fornaro and Wolf can be explained as a government launched public investment program: These policies will shift the GG curve upward, which means to increase the monetary efficiency because they increase investment and productivity growth for given aggregate demand. If this shift is large enough, the stagnation trap equilibrium disappears. That means a sufficiently aggressive policy intervention to sustain investment can rule out stagnation traps. In the current stage, of the supply disruption caused by the coronavirus epidemic turns out to be persistent, it might cause a severe slump driven by weak aggregate demand. In this case, drastic policy interventions – both monetary and fiscal – might be needed to prevent the negative supply shock triggered by the coronavirus spread from severely affecting employment and productivity. 12

However, he claimed that the economic situation could see a booming quarter after the current sharp recession, where there will be a lot of production due to the pent-up demand resulting from the period of low activity. For the unemployment rate, he believed that the current jobless rate in the U.S. is in a 50-year low trend before the coronavirus epidemic outbreak in the U.S., and the huge spike of unemployment will be mostly centered in the second quarter. However, there will not be mass panic and huge economic depression since everyone knows that there are several pandemic relief programs which will benefit the American people, in this case, both the investor and employees are well-prepared for the short-time shock on economic growth. 13 Some other economists are even more pessimistic, Ellen Zentner who is Morgan Stanley’s U.S. economists, told clients in a report on Sunday that they now see American GDP falling at an annual rate of 30.1% in April-June, which will drive up unemployment to average 12.8% over the period. They also projected a 24% annualized drop in U.S. output in the next quarter. They warned that coronavirus would inflict greater economic pain than they previously expected, and a deeper global recession is coming. 14

The condition for China is nothing better: Chinese companies had their worst quarter on record, with every individual sector reporting bad results in the first quarter of 2020, according to the China Beige Book, a quarterly survey of firms. The widespread decline in sales, especially in the retail sector, and a simultaneous collapse in revenue and profits are happening in China even after the government decided to let the manufacturing and other industries to start production and working. Due to the strict quarantine policy that shutdown all non-essential goods production from January to the early of March, the industrial output plunged 13.5% in January and February from a year earlier, retail sales fell 20.5%, and fixed-asset investment dropped 24.5%. The unemployment rate jumped to a record 6.2% in February, according to the officially released number, when the outbreak worsened, and much of the economy was shutdown. 15 Chang Shu, a Bloomberg economist, stated that their Economics’ nowcast model shows China’s GDP is tracking about -20% year on year in the first two months. This is an extraordinarily low reading, well below our 1.2% call for 1Q and a lower-bound estimate of -4.3%, and even further behind the consensus 4% view.

Economic activity shrinks in the first two months of 2020

However, the real estate market in China is the first sector that experienced recovery. Despite the residential transactions in China’s 30 major cities fell more than 99.7% from February 8th when there were only 22 deals, the sales have partially rebounded and are up about 8.5 times in the first 17 days of March. 17 An explanation to this is that the Hukou System of China, which is used by the government to control the population migration, allows the government to maintain the stability of real estate price of Chinese cities that the recourses such as health care or education. Due to its connection to social programs provided by the government, which assigns benefits differently based on regions, it makes the real estate of big cities become a high value-added product that includes the extra benefit like health care, education, pension plan and employment opportunities, which are still relatively superior in big cities than the rural area and small towns. However, Chinese government’s real estate price control policies, such as house purchasing restricts and strict capital flow control, will prevent them from relying on the real estate market as the source of GDP growth in the long term. Even if they do, according to estimated modelling by the same experts, to analyze the expected losses to different countries across the world, the global GDP is likely to decline by roughly 0.42% in the first quarter of the year due to the outbreak. This will force the Chinese government to change their expectation to the future GDP growth, which means 7% GDP growth in 2020i is no longer practical, and 6% or even lower is foreseeable.


1 Yun Li, (2020, Mar 9) Dow sinks 2,000 points in worst day since 2008, S&P 500 drops more than 7%, CNBC. Retrieved from

2 Ben Casselman, (2020, Mar 10) Economic Prescription for Coronavirus: ‘You’ve Got to Go Fast’, The New York Times. Retrieved from

3 Davide Ghiglione, (2020, Mar 01) Italy unveils €3.6bn stimulus to tackle coronavirus, Financial Times. Retrieved from

4   The Guardian, (2020, Mar 12) Italy's government orders all shops, bars and restaurants to close, The Guardian. Retrieved from

5   BBC News. (2020, Mar 10) Coronavirus: Italy to suspend mortgage payments amid outbreak, BBC News. Retrieved from

6 Yonhap News Agency. (2020, Mar 12) Coronavirus to have bigger, longer impact on economy than past epidemics: BOK, Yonhap News Agency. Retrieved from

Yonhap News Agency. (2020, Mar 12) Korea's consumer sentiment dips fastest in OECD on virus, Yonhap News Agency. Retrieved from

7 박용하. (2020, Mar 11) 여당, 비례 더 가지려다 ‘격전지 표’ 까먹을라, 경향신문. Retrieved from

9 Nick Timiraos. (2020, Mar 15) Fed Cuts Rates to Near Zero and Will Relaunch Bond-Buying Program, The Wall Street Journal. Retrieved from

10 Matthew Yglesias. (2020, Mar 23) Monday’s dramatic Federal Reserve announcements, explained, Vox. Retrieved from

11 Chris Arnold. (2020, Mar 19) U.S. Orders Up To A Yearlong Break On Mortgage Payments, NPR. Retrieved from

12 Fornaro, Wolf, Coronavirus and macroeconomic policy, VOX, 2020.

13 Jeff Cox. (2020, Mar 25) Fed’s James Bullard says after a short-term ‘unparalleled’ shock, economy will boom again, CNBC. Retrieved from

14 Simon Kennedy. (2020, Mar 22) Morgan Stanley, Goldman See Virus Causing Greater Economic Pain, Bloomberg. Retrieved from

15 Bloomberg News. (2020, Mar 23) China’s Companies Have Worst Quarter on Record, Beige Book Says, Bloomberg. Retrieved from

16 Bloomberg News. (2020, Mar 16) China’s Economy Suffers Historic Slump Due to Virus Shutdown, Bloomberg. Retrieved from

17 Jack Sidders. 2020, Mar 22) Chinese Home Sales Point to Tentative Recovery After Collapse, Bloomberg. Retrieved from