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Report to Congress on Global Economic Effects of Coronavirus

The following is the March 16, 2020 Congressional Research Service report, Global Economic Effects of Covid-19: In Brief.

From the report

Since the World Health Organization (WHO) first declared Covid-19 a world health emergency in January 2020, the virus has been detected in over 100 countries and almost all U.S. states. The infection has sickened more than 150,000 people, with fatalities.

On March 11, the WHO announced that the outbreak was officially a pandemic, the highest level of health emergency. During that time, it has become clear that the outbreak is negatively impacting global economic growth. The virus is affecting a broad swath of economic activities, from tourism, medical supplies and other global value chains, consumer electronics, and financial markets to energy, food, and a range of social activities, to name a few. Without a clear understanding of when the effects may peak economic forecasts must necessarily be considered preliminary. Efforts to reduce social interaction to contain the spread of the virus are disrupting the daily lives of most Americans.

On March 2, 2020, the Organization for Economic Cooperation and Development (OECD) released its revised economic outlook and suggested that global economic growth could decline by 0.5% in 2020 to 2.4% if the economic effects of the virus peak in the first quarter of 2020. If the effects of the virus do not peak in the first quarter, which now seems unlikely, the OECD estimates that global economic growth in 2020 could be reduced by half, or 1.5%.

Concerns over economic and financial risks have pushed investors to search out safe-haven investments such as the benchmark U.S. Treasury 10-year security, which experienced a historic drop in yield to below 1% on March 3, 2020 (the price and yield of a bond are inversely related).5 The yield dropped again to historic levels on March 6, 2020, and March 9, 2020, as investors moved out of stocks and into bonds due to concerns over declines in major stock indices and expectations that the Federal Reserve would lower interest rates for a second time in March 2020. In overnight trading on March 8, 2020, and again on March 11, 2020, March 13, 2002, and March 15, 2020, U.S. stock market indices moved sharply, triggering automatic circuit breakers designed to halt trading if the indices rise or fall by more than 5% when markets are closed. Financial markets from the United States to Asia and Europe are volatile as investors are concerned that the virus is creating a global issue with few metrics to indicate how prolonged and expansive the economic effects may be. The virus is also affecting global politics as world leaders are canceling international meetings and some nations reportedly are stoking conspiracy theories that shift blame to other countries.

The challenge for policymakers is to implement targeted policies that address what are expected to be short-term problems without creating distortions in economies that can outlast the impact of the virus itself. Policymakers are being overwhelmed by the quickly changing nature of the crisis that has compounded a health issue with what could become a global trade and economic crisis whose potential effects on the global economy are rapidly growing. In addition, many policymakers are constrained in their response to the crisis, with little flexibility for monetary and fiscal support, given the broad-based synchronized slowdown in global economic growth, especially in manufacturing and trade, which had developed prior to the viral outbreak.

Download the document here.