Global Growth Could Be Halved

 

The downward trend in some stock exchanges has already indicated: If the corona virus continues to spread, it could leave clear marks on the global economy. In Germany, the worries are still limited.

The coronavirus epidemic could put the global economy in a bad position this year. According to estimates by the industrialized nation’s organization OECD, the growth expected for 2020 could halve if the virus continues to spread in the Asia-Pacific region, Europe and North America. This would mean the rate would only be plus one and a half percent.

Should the situation stabilize soon, however, the global economy should grow by 2.4 percent in 2020, after a comparatively weak 2.9 percent in 2019.

The worst hit by the negative scenario would be China, where the virus first appeared. According to the OECD, growth there is likely to slow significantly. The economists expect only 4.9 percent in 2020, after 6.1 percent in 2019.

The consequences of the increasing economic problems in the People's Republic should quickly be felt globally in the globally networked supply chains of companies, but also with commodity traders and travel providers.

Falling demand at Lufthansa

Tourist air traffic from Germany is already anticipating a decline this year. Flights to vacation areas are likely to decline by around one percent, while the number of all flights is expected to decrease by 2.5 percent, according to an analysis by the German Aerospace Center (DLR).

Because of the coronavirus epidemic, the number of flights to China is already showing strong declines, although no reliable statements can be made for the summer, said DLR.

Lufthansa announced that it would suspend flights to mainland China until the end of April due to the virus. Due to falling demand, the airline is also thinning out its flight schedule to Italy in March. Domestic flights in Germany will also be cut.

According to estimates by the international airline association IATA, globally active airlines are likely to lose around 1.5 billion dollars as a result of the virus consequences in 2020.

Global economy could shrink by March

For the current first quarter, the OECD does not rule out the possibility that the world economy could even contract. All 20 leading industrial and emerging countries are economically affected. The stronger the connections with China, the stronger the effects - for example in Japan, South Korea and Australia.

German industry can currently not complain, according to experts, the situation remained stable in February. Federal Minister of Economics Peter Altmaier (CDU) also said on ARD that Germany has a very resilient economy. Companies report interruptions in the supply chain, which has led to delays in purchasing here and there. The effects on production were therefore limited.

However, if the negative effects in China continue and spread to other economies, the decline in production could accelerate again. In this case, the OECD expects Germany to only grow by 0.3 percent - after 0.6 percent in 2019.

In order to counteract the economic downturn, the group of industrialized countries recommends higher government spending. Above all, money would have to flow into the health systems in order to have enough staff and material available. In addition, the liquidity of banks must be secured so that money can be lent to companies in distress. Short-time work is also a useful instrument.