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Longer-term economic fallout may hinge on how regions attack virus

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      By Emerging Markets Debt TeamEaton Vance Management

      Boston - The emerging markets debt team has been closely monitoring the novel coronavirus, COVID-19, and tracking its impact on the global economy, and we offer this update as of March 10.

      As of March 7, more than half of the world's countries reported confirmed cases, which are highly concentrated in South Korea, Iran and Italy. Cases in other countries are rapidly rising as well, including Germany and France, confirmed cases worldwide have topped 100,000.

      An important statistic to watch is the rolling three-day daily growth rate of new cases outside China. According to data from Worldometer.info, the growth rate as of March 10 was 14.0%, indicating that new cases will double every 5.1 days. At this rate, we can expect to see the reported cases outside China exceed those within that country around March 17. This rate has actually been falling the past few days, but is also quite volatile. At the current growth rate in new cases, a realistic scenario is that global cases could exceed Chinese cases by early next week, a headline that investors should anticipate.

      Our view of longer-term economic fallout is that we should not expect a global, V-shaped economic outcome, i.e., one in which a sharp decline is followed by a quick, strong recovery. The virus is making its way around the world at various rates and with varying degrees of severity. Thus, a series of W-shaped economic outcomes is more likely, reflecting the fact that economies are slowing and recovering at different times and different rates.

      Each country's response to the crisis is likely to have a strong impact on the nature of the recovery. In China, where containment has been emphasized, a deep V-shape is more likely. The sudden stop imposed by the country's quarantines sets the stage for a sharper rebound as businesses start to come back to life. But it will be important to monitor closely for a second wave of infections.

      In contrast, we would anticipate a shallower, U-shaped path for the US economy, given that there have been no large-scale quarantines or restrictions to date, and mitigation appears to be the favored approach. Should US policymakers turn to containment strategies, expect a sharper, briefer economic impact.

      Bottom line: As regions try methods such as containment and mitigations, their efforts will likely have a major impact on whether to expect V- or U-shaped paths for their individual economies. For the world, we expect the economic path to collectively be a series of W's.