A darkening shadow over the global economy and credit

The rapidly expanding geographical spread of COVID-19 over recent weeks has intensified the already significant risks set out in S&P Global Ratings' Feb. 11, 2020 report, "Global Credit Conditions: Coronavirus Casts Shadow Over Credit Outlook,". As a result, our estimate of the likely impact on global economic growth has nearly doubled to more than 0.5 percentage points of global growth. This assumes that the epidemic will subside during the second quarter of this year. We now estimate that China's 2020 GDP growth could be 4.8%, 0.9 percentage points (ppt) lower than our November baseline forecast. Growth could be 0.5 ppt weaker in the euroarea and 0.3 ppt in the more-insulated U.S. economy.

Full details are set out in "Global Credit Conditions: COVID-19's Darkening Shadow," published on March 3, 2020. Given that this is fluid and evolving situation, risks to this baseline remain firmly to the downside and subject to regular revision as the scale of the epidemic becomes clear.

Risks heightened by COVID-19's global expansion and the resulting impact on confidence, demand, and financial market volatility

Three key factors have altered the risk picture. First, the rapid geographic spread of the infection, which has now been reported in more than 100 countries (see chart 1), has dramatically increased the challenge of containment and the degree to which the disease will affect the global economy. Italy, South Korea and Iran have been particularly affected, and case numbers are growing rapidly in many countries. Second, the existing global supply-side shock--exacerbated by the spread of the disease to South Korea, a key technology manufacturer--now runs in parallel with a global demand shock, as travel, events, investment, and consumer spending have been restricted by anxiety around the spread of COVID-19 and efforts to stop it. Finally, financial markets have reacted adversely to these developments, adding concerns regarding funding cost and access. This has already prompted an interest-rate cut from the U.S. Federal Reserve and further policy responses are likely, an example being Italy's decision to suspend household mortgage payments.

Chart 1: Geographic Spread And Ex-China Case Growth Rate Of COVID-19, Mar. 11, 2020

^{Source: John Hopkins CSSE, S&P Global Ratings.
Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.}

Industries that rely on consumer discretionary spending (e.g., travel and high-end retail) and cross-border supply chains (e.g., auto, electronics, and chemicals) are particularly exposed, from a credit perspective, because of the increased pressure on revenue and earnings. Visibility around cash flows remains a core concern, given the abrupt and chaotic nature of the disruption to consumers and businesses, as well as the lagged and complex impact on supply chains. Should the virus necessitate extended quarantine and travel restrictions, such uncertainties will be greatly magnified. In funding terms, central bank support remains a vital underpinning, but the risk environment is likely to become even more discriminating.

Estimates of the impact of the virus will continue to evolve based on evidence of transmission rates, not only in terms of geographic spread, but also, critically, in terms of the extent of infection within countries. Our current forecasts assume that the epidemic will subside in the second quarter--it is not yet certain that this assumption is correct. The duration of the crisis is just as important as its spread, given the cumulative impact on supply chains, production, and labor. A prolonged crisis may make the recovery more sluggish.

The complete suite of reports published by S&P Global Ratings, assessing the potential economic and credit implications across geographies and industries, is available at "Coronavirus Impact."

Chart 2 below provides an updated and interactive view of confirmed cases globally, using data provided by the Center for Systems Science and Engineering at John Hopkins University. It also provides an estimated reduction in 2020 GDP growth relative to S&P Global Ratings's previous baseline forecast for countries more exposed to the economic and confidence shock resulting from the outbreak. Chart 3 provides a breakdown of confirmed cases in the U.S. by state, from the same source.

Chart 2: Geographic Distribution of Confirmed Coronavirus COVID-19 Cases, Mar. 11, 2020

^{Source: John Hopkins CSSE, S&P Global Ratings. Note that French Guiana in South America is mapped as part of France, but this does not indicate any cases in that overseas department of the French Republic.
Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.}

Chart 3: State Distribution of Confirmed U.S. Coronavirus COVID-19 Cases, Mar. 11, 2020

^{Source: John Hopkins CSSE, S&P Global Ratings.
Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.}

This report does not constitute a ratings action.