Coronavirus Threat to Global Growth

Coronavirus Threat to Global Growth

The world economy, which has been facing downside risks for the past few years, is going through hard days due to the new type of coronavirus (Covid-19) that are emerging in China and spreading rapidly. The world economy, which has not reached the potential growth level in the past 10 years after the global financial crisis, has to cope with the problems arising in developed and developing countries. In recent years, Brexit, trade wars, social movements in the EU and increasing geopolitical risks around the world have brought global growth down, while the Covid-19 outbreak that emerged in China in 2020 became the main agenda item. Compared to SARS and MERS viruses in the past years, the effects of the destruction of the Covid-19 virus, which is transmitted to people faster, to the economy started to reflect on the leading data. Considering the epidemics of SARS and MERS between 2003 and 2012, it is remarkable that today both global trade volume and international travel and tourism activities are higher. The world economy, which grew by 3.9 percent in 2017, grew by 3.5 percent and 2.9 percent respectively in 2018 and 2019. The Organization for Economic Development and Cooperation (OECD) has announced that it has lowered its global economic growth forecast by 0.5 points to 2.4 percent this year, with concern for coronavirus. PMI DROPS TO COLLAPSE IN CHINA China, the second-largest economy in the world, is one of the countries most affected by the coronavirus epidemic. The emergence of coronavirus caused disruptions in international supply chains, while also negatively reflecting on global trade. Manufacturing industry Purchasing Managers Index (PMI), which is one of the leading indicators of growth, has started to be announced in February. Data below 50, which indicates a contraction, plays an important role in measuring the economic activity in the country. Accordingly, the manufacturing industry PMI data of February, which was announced by the China Logistics and Purchasing Department, fell to its lowest level since 2005, when these statistics started to be published. Another manufacturing industry PMI announced by Caixin in China decreased to 40.3. This level marked the lowest level since 2017 when statistics began to be published. Analysts said that in the first quarter, the economy will grow or shrink close to zero in China, and this is expected to affect the global economy at the same time. In Japan, the second-largest economy in Asia, the manufacturing industry PMI fell to 47.8 in February. This data also fell to its lowest level since the statistics began to be published. PMIs PROTECT THE SILENCE BY EUROPE AND THE USA While the manufacturing industry PMI in Germany, the largest economy in Europe, has been in an upward trend in the last 2 months, the data, which was 43.7 in December 2019, increased to 48 last month. The Euro Area manufacturing industry PMI also showed a similar trend to Germany and reached 49.2 in the last 2 months. Manufacturing PMI data, which indicates that the wheels are accelerating in the British economy, rose to 51.7 in February. In the USA, manufacturing industry PMI data was 50.7, remaining above 50, even though it experienced a limited retreat compared to the previous month. ISM manufacturing index, another important index in the USA, also retreated slightly in February, from 50.5 to 50.1. On the other hand, the global manufacturing industry PMI index has demonstrated the magnitude of the slowdown in the global manufacturing industry, dropping from 50.4 to 47.2 with the fastest retreat since 2009. Analysts said that the effects of the Kovid-19 epidemic in the Eurozone economies were in the opposite direction, and the supply deficit originating from China might have shifted to this region. Stating that firms may experience liquidity shortage due to delays in the supply of many commodity groups globally, analysts noted that the decline in both supply and demand sides could significantly limit global economic growth, and for the first quarter of the year, many economies could grow well below expectations.