Morgan Stanley
Morgan Stanley

New York: Economists from Morgan Stanley and Goldman Sachs now believe that novel coronavirus (COVID-19) is pushing the global economy into recession.

A global recession is now the base case, said Morgan Stanley economists led by Chetan Ahya. They see growth falling to 0.9 per cent this year.

The Goldman Sachs team led by Jan Hatzius sees growth weakening to 1.25 per cent. Both groups expect the global economy to rebound in H2.

The recession will not be as steep as the 0.8 per cent contraction of 2009, according to the International Monetary Fund's measure, but will be worse than the 2001 and early 1990s recessions.

The projections put more pressure on policymakers to take measures to limit the health emergency and then inject enough stimulus so demand increases once the virus is under control.

"While the policy response will provide downside protection, the underlying damage from both COVID-19's impact and tighter financial conditions will deliver a material shock to the global economy," said Morgan Stanley's economists.

But there is still a lot of uncertainty as to how long the spread of the virus will take and its economic consequences as factories, stores, restaurants and schools close.

Other risks include slow government response and a freezing up of markets and credit.

China is projected to face the brunt of the economic contraction in the first quarter before rest of the world absorbs the second quarter hit, said Morgan Stanley. The country's economy will shrink by 5 per cent in the first quarter before rebounding to expansion through 2020.

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