Measuring the global economic impact of the coronavirus outbreak: Evidence from the main cluster countries

Highlights

• We study the impact of the COVID-19 pandemic on three main economic indicators.

• In China, the pandemic co-moves with the indicators only in the short-term.

• In other countries studied, the effect is more persistent.

• The indicators are more sensitive to the number of deaths than the number of cases.

• Currency and financial markets are affected by the pandemic in different timescales.

Abstract

This study measures the global economic impact of the coronavirus outbreak. This pandemic is characterized by demand and supply shocks, leading to restrictions on trade, product and service transactions, and capital flow mobility. We investigate its impact on currency markets, stock market performance, and investor fear sentiment. We employ an empirical, time-scale approach based on the continuous wavelet transform—appropriate for time-series characteristics during times of turmoil. Based on daily data for four main cluster countries (China, France, Italy, and the USA), our results show that the impact of the pandemic's evolution on the main economic indicators in China exhibits a different pattern from France, Italy, and the USA. For China, our results show that the pandemic evolution co-moves with the main economic indicators only in the short term (one week). The effect is more persistent in other countries. We also show that the main economic indicators are more sensitive to pandemic evolution assessed by the number of deaths rather than number of cases, and that currency and financial markets are affected in different timescales. These findings might assist policymakers in addressing the feedback loop between currency markets and capital flows and help investors find alternative assets to hedge against heath shocks.