As the number of confirmed coronavirus cases surpassed 80,000, with new outbreaks in Italy and Iran and a worsening situation in South Korea, stock markets plummeted amid analysts' fears that the health emergency might spark a global recession.
But others cautioned that the risk of recession is low and China will likely contain the new coronavirus by the end of March, staving off an economic crisis. Moreover, the internet is helping offset some of the economic damage.
Monday's sharp falls on America's Dow Jones Industrial Average, S&P 500, and NASDAQ indices bled into Tuesday. So did drops on the FTSE 100 in the U.K. and the Nikkei 225 in Japan. President Donald Trump, who holds up the stock markets as evidence of his economic success, is reportedly furious.
China's economy, which is the second-largest on the planet, and whose manufacturing and production sectors serve as a workshop to the rest of the world, has taken a severe hit because of its response to coronavirus. Global businesses are now suffering from supply chain issues.
Entire cities in China are on lockdown and factories and offices temporarily closed until the virus threat has receded. Fewer people are traveling to China while it tackles the coronavirus, softening demand further.
Diane Swonk, chief economist at Grant Thornton and an adviser to the Federal Reserve, wrote in a message posted to Twitter on Monday that the coronavirus is "rapidly becoming an economic pandemic."
Speaking on CNBC on Tuesday morning, Kevin Boscher, chief investment officer of Ravenscroft Group, called the coronavirus "a potential black swan event" that "risks pushing the global economy closer to recession."
In a note last Friday, Peter Berezin, chief global strategist at BCA Research, warned that markets were "too complacent" about the economic threat posed by the coronavirus. If it develops into a major pandemic, Berezin said it "would rattle the global economy, leading to a recession as deep as the one in 2008/09."
"Demand for most items other than necessities would collapse. Business and leisure travel would fizzle. The global supply chain would seize up. The only consolation is that the recession would likely be followed by a vigorous 'V-shaped' recovery," Berezin wrote.
China, where the coronavirus originated, is suffering the most. The overwhelming majority of cases and deaths are in mainland China. Many of its citizens are quarantined in their homes, though the coronavirus has now spread globally.
Faced with their own snowballing outbreaks, South Korea, Italy, and Iran are introducing emergency measures and imposing restrictions on citizens to prevent the further spread of the virus. These latest developments are spooking investors and recession talk is growing as the World Health Organization monitors closely for signs that the situation has become a pandemic.
Last week, the consultancy Oxford Economics said the coronavirus could wipe $1.1 trillion in value off the global economy if it became a pandemic that spread beyond Asia, The Guardian reported.
"The risk that coronavirus could trigger a global recession cannot be written off," Cailin Birch global economist at the Economist Intelligence Unit (EIU), told Newsweek. "However, we estimate that containment efforts would have to drag into the second half of 2020 in order to generate the disruption to global trade demand and consumer spending that would be necessary to create such an outcome."
Birch said the EIU "expects the virus to be contained within China by-end March, based on scientific research on this novel coronavirus and the speed of the authorities' response. This would entail a major hit to the Chinese GDP in the first quarter, but allow for a rebound in the second half of the year."
As a consequence, the EIU revised down its global growth forecast to 2.2 percent for 2020, a 0.1 percent reduction on its previous estimate because of China's coronavirus-related slowdown and the ripple effect elsewhere.
"If the timeline for the containment of the virus slips, however, we will probably revise down our global GDP growth forecast further in 2020," Birch said. "This risk has increased significantly in recent weeks as the virus has spread to several other countries, including Iran, Italy, South Korea, and Japan."
Paul Donovan, chief economist of UBS Global Wealth Management, said in a briefing note on Tuesday morning that financial markets were reacting to "fear of fear of the virus."
"The economic damage of the virus is mainly through fear of the virus. Italy's quarantine measures led investors to fear that fear would spread to European consumers," Donovan said.
Donovan told Newsweek that fear has the biggest economic impact because it changes the behavior of people and policymakers. He said the risk of recession is present "but at this stage still relatively low" and the general consensus is the virus will be a relatively short-lived issue.
"The moderation of global growth in the recent past has mainly been brought about by a slowdown in investment," Donovan said, blaming the "uncertainties" caused by President Trump's policies on trade and taxes.
"There was a reluctance to invest in global supply chains when you did not know what tomorrow's tweets might say. The reluctance to invest in global supply chains will be reinforced by the virus, but not made worse."
Donovan warned that because economic growth is supported mainly by consumer spending "this is where fear from the virus could do the most damage."
"If consumers become afraid (whether rationally or not) then weakening consumer spending could do damage to the economy," Donovan told Newsweek.
"If the fear is geographically confined, and the virus effect is short-lived (for example, if this is mainly an Asian problem and mainly in the first quarter) then the risk of a recession is low.
"I would argue that, by and large, that is the situation at the moment. If something happens to spread fear in the U.S. or Europemore than is the case at the momentthen the risk of consumer weakness and a recession will increase."
The International Monetary Fund (IMF) is still predicting 3.3 percent global economic growth for the year. But Kristalina Georgieva, managing director of the IMF, warned that the recent recovery in economic growth is now threatened because of the coronavirus.
"Since that projection was made, the COVID-19 virusa global health emergencyhas disrupted economic activity in China and could put the recovery at risk," she said in a statement after meeting with G20 finance ministers in Saudi Arabia over the weekend.
"Above all, this is a human tragedy, but it also has a negative economic impact. I reported to the G20 that even in the case of rapid containment of the virus, growth in China and the rest of the world would be impacted.
"Of course, we all hope for a V-shaped, rapid recoverybut given the uncertainty, it would be prudent to prepare for more adverse scenarios."
Donovan cautioned that aggregate global GDPthe world's economies combinedis not a useful indicator because China's giant economy distorts the figure. The direct effect of a Chinese slowdown on the U.S. or Europe is "limited," he said.
He also explained that the virus has changed both supply and demand, but not all of this is in a negative way, and activity can shift too, such as people working from home where possible, which offsets some of the damage.
Less production in China is bad because it impacts supply chains. But while fear has reduced demand for some services, such as travel and certain leisure activities, housebound people have turned to internet shopping instead and are spending more online.
"This is one of the key differences compared to SARS or MERS [previous viral outbreaks]the rise of online shopping in recent years will moderate the impact on demand. The impact is still negative overall, but it is less negative that would be the case in the absence of Amazon, or Netflix, or online games," Donovan told Newsweek.
Looking to the U.S. economy, the EIU's Birch told Newsweek it is less reliant on trade than many other countries, which will shield it from the worst effects of the coronavirus impacts.
"However, businesses in the U.S. that rely on the Chinese consumer market, including the tech sector, will be impacted by the sharp downturn in near-term Chinese demand," Birch said.
"Business investment has already slowed noticeably over the last year, owing in part to weaker external demand, including from China," she continued, adding that the EIU expects a contraction in investment this year.
"Transport and import costs could also rise, particularly if the virus is not contained by end-March; this could entail some supply disruption from China, pushing U.S. consumers to consider more expensive alternative goods."
UBS's Donovan said that even when the situation returns to normal in China and beyond, it may be a "new normal" because the virus could trigger lasting changes. "The long term implications of the virus are not necessarily clear," Donovan told Newsweek.
"For example, I believe that technology is gradually moving us towards localization of production (supply chains become shorter and less complicated, with more production taking place close to the final consumer).
"This would happen organically as a result of gradual change in the normal course of events. However, the coronavirus may accelerate some of the investment decisions that are required to change production patterns."
Donovan cited the 2012 Olympic Games in London as "an external event that can change working practices" because the subsequent rise in flexible working, including working from home, among the city's workers seems to be rooted in the event.
"The same thing may happen with home working arising from the coronavirus," he said.
"That has long term implications for infrastructure, office density rates, and the like. Online retail tends to trend upwards as a share of overall retail, but again there are 'step increases' when something happens to push more people onlineand once online people rarely come offline.
"So the way we return to economic activity after the virus is likely to be different."