ACCA eyes global economic impact of coronavirus

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The Association of Chartered Certified Accountants has released a paper examining the impact of the coronavirus, and how it is affecting economies around the world, including the U.S.

In the policy brief released Monday, the ACCA noted that economic shocks such as the coronavirus, also known as COVID-19, tend to have temporary effects on economic activity, which recovers quickly once a crisis has passed, as occurred with the SARS outbreak in 2003.

“The virus has now spread widely, with over 50 countries reporting at least one case, and significant numbers of cases in Italy and South Korea and a new case here in the United States,” said Warner Johnston, head of ACCA USA, in a statement. “Fears are growing of a pandemic with global economic consequences, and the recent falls in global equity markets signal the transmission of these concerns to financial markets.”

Health care workers transport a patient on a stretcher into an ambulance at Life Care Center of Kirkland, Washington.
Health care workers transport a patient on a stretcher into an ambulance at Life Care Center of Kirkland, Washington.

More than 3,000 people have died from the coronavirus as of Monday, including six in Washington State.

Overall, the impact on economic activity is expected to be severe and global stock markets plunged last week amid coronavirus fears. However, on Monday, the Dow Jones Industrial Average and the S&P 500 actually rose as investors heard reports that the Federal Reserve may lower interest rates to support the stock market.

“For now, this is still our central case — whatever the short-term effects, we expect activity to recover, such that by the second half of 2020 global economic activity is growing at the rate it would have been if the coronavirus outbreak had not occurred,” said ACCA chief economist Michael Taylor, in a statement. “But the risks of a prolonged crisis have increased in recent weeks and the effects of this would be more long-lasting. A rise in business failures and job losses, for example, would further depress output and extend the economic damage well into the second half of the year.”

The ACCA policy brief pointed out that travel restrictions within China and extended factory closures are having a major drag on the economy in that country. Consumer spending, which has become a key driver of economic growth in China, is expected to be weak in the first few months of this year. Data for early last month indicated annual declines of over 90 percent for both car sales and property sales.

China’s integration into global supply chains means that there is potential for a wider economic effect. Within Asia, Vietnam, Taiwan and South Korea are particularly vulnerable. European carmakers could be affected too but so far have not reported interruptions to production. The boom in overseas Chinese tourists in recent years has boosted service sector exports in many countries, including the United States. Despite investor hopes that the Federal Reserve is prepared to lower interest rates, the report predicts that major central banks such as the Federal Reserve aren’t likely to respond with easier policy. But because the virus adds to near-term downside risks to the global economy, the current easy stance of policy will probably be maintained.

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