Morningstar’s View: The Impact of Coronavirus on the Economy

The hit to 2020 should be significant, but we see minimal long-term economic impact, and the treatment pipeline is progressing.

COVID-19, the disease caused by the SARS-CoV-2 coronavirus, is spreading across the globe, leading to sharp market corrections and fears of triggering a global recession. Risks relating to the fallout from the spread of coronavirus pushed the Federal Reserve to cut the federal-funds target rate by 50 basis points on March 3, to 1%-1.25%, and President Donald Trump signed an $8.3 billion spending bill to fight the coronavirus on March 6. The virus emerged in China, where the government quickly weighed the economic and human costs of the rapidly transmitting new coronavirus and in January decided to focus on stopping the spread of the disease, regardless of the short-term economic hit. While responses beyond China are likely to be more measured, we expect to see school closures and recommended telecommuting as precautionary measures in the United States, given the recent rapid spread of the disease.

-Overall, we see a weighted average hit of 1.5% to 2020 global GDP and 0.2% to long-run global GDP. We forecast a muted long-term impact because damage to productive capacity will be small, plus economic confidence should quickly return once the virus subsides.

-Our long-term China GDP forecast is unchanged. We have lowered our 2020 China GDP forecast by 250 basis points, but we expect catch-up growth in following years.

-We assume a global fatality rate in our base case of 0.5% among those infected, higher than seasonal flu and recent pandemics like the 2009 swine flu, but much lower than levels reported to date as diagnosis improves. We expect even lower fatality rates for developed countries and the working-age population.

-We see reason for optimism surrounding vaccines and treatments. We should see initial data from Gilead’s (GILD) remdesivir by April; this drug could be a strong defense for patients with severe disease. Among vaccines, Moderna’s (MRNA) is the most advanced, but we don’t expect use until 2021.

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Πηγή: morningstar.com