Q-Review 1/2020: Estimating the economic impact of the coronavirus

We have updated our forecasts on the economic impact of the Covid 19.

As shown by the ghastly February PMI prints from China, the coronavirus is about to hit the global economy like a sledgehammer. It has already caused serious disruption in production, air travel and commerce worldwide. And more is on the way.

However, a deeper analysis of the main sources of the fragility of the global economy reveal that though the coronavirus is definitely a Black Swan, its economic impact should not be considered exactly the same way.

There are three main culprits which explain why the global economy is now plummeting into an economic and financial abyss:

  1. The failed cleanup of the 2007-2008 financial crisis.
  2. Unprecedented and ever-growing market manipulation by central banks.
  3. The unsustainability of the post-crisis debt-stimulus by China

So, the economic ramifications of the Covid-19 are better viewed as a grey swan, predictable, understandable and empirical, and they would almost certainly have occurred sooner or later even without the coronavirus outbreak.

The coronavirus was simply the detonator.

coronavirus COVID-19

Figure. The confirmed cases of the 2019-nCov virus globally in actual numbers (left axis) and in logarithmic scale (right axis) from the 22nd January till the 8th of March. Source: GnS Economics, WorldOmeter, Johns Hopkins CSSE

In this report, we will deal with the aftermath of the coronavirus outbreak and tie it to other developments that will drive the global economy into depression.

We will run different modeling scenarios to show how this outbreak, combined with the deeply rooted fragility of the global economy and the financial markets, is likely to affect the global economy.

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