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A woman wearing a face mask as a protection against the new coronavirus walks in Piazza Duomo, in Milan, Italy, on March 2, 2020.MIGUEL MEDINA/AFP/Getty Images

The OECD has warned that global growth could fall by half if the coronavirus outbreak proves long-lasting and has urged governments to prop up their health services and launch stimulus measures to soften the economic blow.

The Organization for Economic Co-operation and Development, which represents mostly wealthy countries, cut its full-year growth forecast to 2.5 per cent from 2.9 per cent on the assumption that the outbreak in China peaks this quarter and outbreaks elsewhere “remain mild and contained.” But if the disease runs rampant and puts some economies into reverse, global growth would fall to just 1.5 per cent.

The warning took the wind out of a tentative European stock market rally Monday, with most major indexes losing most of their early gains or falling into negative territory, ending investors’ hopes that they would recover some of last week’s deep losses. Oil rose nearly 5 per cent after a steep decline that began in early January.

There was little sign Monday that the COVID-19 outbreak was close to running its course. The disease has hit more than 60 countries, including most of Europe, taking the number of confirmed cases worldwide to almost 90,000, with more than 3,000 deaths, most of them elderly patients with pre-existing conditions. Over the weekend, the United States recorded its first two coronavirus deaths. As of Monday morning, there were 86 confirmed cases in the U.S. and 24 in Canada, according to the World Health Organization, the U.S. Centers for Disease Control and Prevention and other health sources.

The European Commission raised its coronavirus risk warning Monday from moderate to high.

Northern Italy remains the epicentre of the European outbreak. Containment measures, such as closing schools and cancelling public events, have failed to halt the spread throughout the country and the rest of Europe. Infected Italians have transmitted the virus to several other countries.

By Monday afternoon, Italy had more than 2,000 confirmed cases and 52 deaths. Eleven towns in the northern part of the country, most of them near Milan, have been in lockdown for more than a week.

The region’s hospitals are already overloaded with COVID-19 cases, raising fears that the relentlessly rising infection rate will swamp the health-care system and prevent some critical patients from getting life-saving treatment, such as respirators. The outbreak was hitting the Rome area hard by Monday, when 12 confirmed cases were reported, up from three before the weekend.

Pope Francis, who is 83 and had part of a lung removed when he was a young seminarian, cancelled public events because of illness. While he said he just had a cold, images and videos of him coughing and speaking in a tired voice raised anxiety levels across Italy.

Roberto Burioni, one of Italy’s leading virologists, said in a tweet Monday: “We must not give up, it is the decisive moment.”

The Italian economy seems to be barrelling toward recession and endured its 17th consecutive monthly decline in manufacturing in February, when the outbreak began to accelerate (on Feb. 21, there were only three confirmed cases in the country).

On Sunday, the coalition government announced a €3.6-billion ($5.35-billion) stimulus package, recognition that interest rate cuts, should they come, will have essentially no power to prop up the virus-battered economy. Economy Minister Roberto Gualtieri said the spending would finance tax credits for companies that report a 25-per-cent drop in revenues, as well as tax cuts. Extra cash will be injected into the health-care system.

The Italian economy has been in recession three times since the 2008 financial crisis and seems on the verge of a fourth. In the final three months of 2019, the economy contracted by 0.3 per cent.

China, the source of the outbreak, is also showing signs of stress. Neil Shearing, chief economist of London’s Capital Economics, said he expects the Chinese economy to contract in the first quarter, the result of strict lockdowns that effectively placed provinces that account for two-thirds of the economy into quarantine.

Mr. Shearing said investors should be skeptical of longer-range forecasts, given the unpredictable nature of the outbreak, especially outside China. “At the benign end of the spectrum, in which most of the disruption is contained to China, we think the global economy may grow 2.5 per cent this year,” he said in a note. “At the other end of the spectrum, it’s possible that the global economy could shrink by 0.5 per cent this year – matching the scale of the contraction experiences during the 2008-09 global financial crisis.”

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