Economists have removed their rose-colored glasses in recent weeks and are beginning to price in scenarios for the world that are as bad or much worse than the global financial crisis.
The state of play: "If you think about the situation going into the financial crisis, I would say all things being equal there was clearly a better ability to react economically … in Europe and in Japan and also in the U.S.," Thomas Holzheu, Americas chief economist at reinsurance giant Swiss Re, tells Axios.
- "Since we see that the global economy is not in a very resilient situation in terms of the ability to organize and muster a very strong policy response, we expect that the recovery will not happen very quickly."
The big picture: The U.S., the world's biggest economy, is likely to have a recession this year and the No. 2 economy, China, has already undergone a significant slowdown.
- That alone would have been enough to weigh on global growth, but because major economies like Italy, Germany, the U.K., France and Japan also are facing major outbreaks of their own, there is growing fear of the entire world's GDP growth turning negative for multiple quarters this year.
- As of Monday night, 15 countries had at least 1,000 confirmed cases of coronavirus, and 12 of those were among the world's 25 largest economies.
Worse, many of the countries expected to be hardest hit by the outbreak are in some of the weakest economic positions, especially those in the eurozone.
- EU regulations have handicapped the ability of local politicians to easily increase spending and the European Central Bank already is employing unprecedented levels of stimulus.
- Many countries were struggling with low growth even before the virus — Swiss Re did not include a single eurozone G7 country in its list of top 10 most resilient economies.
The big picture: A major struggle for policymakers is that much of the outbreak's economic impact is not yet measurable. That makes preparing for and assessing the potential for damage a new challenge.
- "This is a true external shock that happens very quickly and very strongly and is totally synchronized," Holzheu says. "We know that there are impacts happening right now and we don’t necessarily see it in a lot of the metrics yet. But still we need to make assumptions about possible implications."