The scale of the problem: The coronavirus (COVID-19) originated from the city of Wuhan in Hubei province of China as early as November 2019. The outbreak grabbed the world’s attention as the virus gained critical mass and the Chinese authorities began to impose strict containment measures. The World Health Organisation (WHO) started to provide daily situation reports from 21 January. Since then the virus has spread rapidly within China and across the globe. The number of confirmed cases globally rose from 282 on 21 January to 118 326 on 11 March. China remains the epicentre of the outbreak, with 80 955 confirmed cases and 3 162 fatalities as of 11 March, accounting for 68.4% of all confirmed cases. In China, the rate of new infections has moderated considerably. It averaged 0.3% over the past two weeks. However, COVID-19 has spread at an increasing rate (which averaged around 22% over the past two weeks) outside China to 113 countries, with 37 371 confirmed cases to date.

Affected countries: The most affected countries outside of China are South Korea (7 755 cases), Italy (10 149), Iran (8 042), Germany (1 296), France (1 774), Japan (568), Spain (1 639), Switzerland (491), the US (696) and the UK (373).

Global economic implications: The outbreak is currently expected to hit China and Italy the hardest. While China’s GDP growth forecast for 2020 has been reduced to between 4.5% and 5.5% (previously just above or below 6%), Italy is now expected to contract by between 0.5% and 1% (previously estimated to grow by around 1%). The US is still expected to grow but at a slightly slower pace. World growth estimates have also been reduced to between 1.9% and 2.6% from around 3% previously.

Global financial implications: Risk-off sentiment is expected to dominate with much higher levels of underlying volatility. Global investors are likely to opt for safe-haven assets until the spread of the virus is halted and some of the extreme preventive measures are lifted. This has already inflicted considerable strain on emerging market equities, bonds and currencies. Global monetary policies will become even more accommodative. Gold prices will probably remain elevated, but other commodity prices, particularly that of crude oil, are likely to slide in line with weaker global demand.

Consequences for SA: The economy is highly exposed to economic conditions in China and the world economy through trade, services and financial linkages. The economic threat posed to an already frail domestic economy is therefore significant. The outbreak is expected to hurt growth, hitting the export-orientated mining and manufacturing industries as well as the broader travel, tourism and hospitality industries the hardest. The risk of company closures and job losses are the highest in these sectors. The Reserve Bank’s Monetary Policy Committee (MPC) is forecast to respond to the country’s faltering economic prospects by cutting interest rates further, supported by a subdued inflation outlook which is reinforced by the implosion of global oil prices. The rand will probably remain weak and volatile, dominated by swings in global risk sentiment. We have revised our GDP forecasts downwards to 0.3% in 2020, 0.9% in 2021 and 1.1% in 2022. The risk of a recession is high.