China’s deepest economic slump in decades carries warnings and lessons for the rest of the world as nations from Germany to the U.S. face the likelihood of following it into recession. First, the upheaval cratered services and consumption as people’s movements were restricted, dealing a hammer blow to airlines, hotels, restaurants and shopping malls. That compounded a collapse in the manufacturing sector as assembly lines went idle while workers stayed home.
The insights from China include the need for urgent measures to contain the virus and not to underestimate the economic hit that it will create. But above all, don’t expect normal service to resume for some time. “The world is following China in February,” said Trinh Nguyen, Hong Kong-based senior economist at Natixis. “Supply and demand shocks are now going global.” Here’s the key economic lessons for the world from China’s experience since mid January.
Virtually across the board, economists failed to capture how wrenching the fall out would be. Since the first GDP forecast cuts started coming in late January, it has been a succession of lower and lower estimates as initial expectations for a rapid (or V shaped) recovery vaporized.