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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Huge Red Flag For Oil: Global Economic Growth Could Be Cut In Half

A prolonged and wide-ranging coronavirus outbreak could cut global economic growth to just 1.5 percent this year, half the growth rate expected before the outbreak, and send Japan and the euro area into recession, the Organisation for Economic Cooperation and Development (OECD) said on Monday.

A significant drop in global economic growth is very bad news for oil demand, which has already been depressed by the outbreak.

Yet, the OECD’s base-case scenario is that the outbreak would peak in China in Q1 2020 and outbreaks in other countries are mild and contained. In this event, global growth could be just 0.5 percent lower in 2020 compared to the projections the OECD made in November 2019, the organization said in its Interim Economic Assessment today.

In this scenario, “annual global GDP growth is projected to drop to 2.4% in 2020 as a whole, from an already weak 2.9% in 2019, with growth possibly even being negative in the first quarter of 2020,” OECD said.

However, if the outbreak lasts longer and spreads throughout Asia Pacific, Europe, and North America, this would materially weaken the global economy, with growth possibly dropping to just 1.5 percent in 2020, half the rate projected before the outbreak.

The coronavirus outbreak has significantly weakened near-term global economic prospects, but the OECD still sees a ‘contained outbreak’ as the base-case scenario.

However, the organization warns that downside risks remain significant and urged governments “to act swiftly and forcefully to overcome the coronavirus and its economic impact.” Related: EV Battery Breakthrough: Twice The Range, Five Minutes To Charge

The International Monetary Fund (IMF) warned last month that China’s growth could drop to 5.6 percent this year due to the coronavirus, down by 0.4 percentage points compared to the January estimate, while global growth would be about 0.1 percentage points lower than previous estimates.

“But we are also looking at more dire scenarios where the spread of the virus continues for longer and more globally, and the growth consequences are more protracted,” the IMF’s Managing Director Kristalina Georgieva said.

As more and more countries started reporting coronavirus cases last week, oil prices plunged by 14 percent in a week as market participants fear a significant global economic slowdown and, by extension, weak global oil demand.  

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on March 02 2020 said:
    The hysteria over the coronavirus outbreak is hurting the global economy, global oil demand and prices more than the outbreak itself with the exaggerated projections of decline in economic growth, oil demand and oil prices. Still, this hysteria will soon be a thing of the past.

    Once the outbreak is contained, the global economy, oil demand and prices will recoup all their recent losses and more with China leading the rebound.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Henry Hewitt on March 03 2020 said:
    Thanks Tsvetana,

    I don't worry about the "rate of growth" falling, ie, an expansive economy at any rate is expanding, I'm much more worried about an actual contraction, and not just a mild recession but an epoch making deflation or something worse.

    What could be worse? Glad you asked. Deflation is terrible but it means you still have a decent currency. In effect, it means that money is getting much more valuable than paper and other things, rapidly. When your currency is no good, though, and the Dollar has now made it into that club, then hyper inflation is the concern. And that is catastrophic. The only other examples of great powers hyper inflating are France in 1790 and Germany in 1922/3.

    How did that work out? Napoleon and Hitler is how that worked out after supply chain breakdowns, hunger, chaos, anarchy and the willingness to accept a strongman to "get us out of this mess". The remedy in the short run, Keep Calm and Carry Yuan

    And as you know better than most of the people who come to this site, nobody has paid a higher price for both of those disasters than Russia.

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