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Coronavirus fallout could shock the global economy into recession, Stephen Roach warns

Coronavirus fallout could spark a global recession, Stephen Roach warns

One of the world's leading authorities on Asia warns that the coronavirus outbreak could wreak havoc on the global economy.

Stephen Roach, who was in China during the deadly 2003 SARS epidemic, believes the potential fallout could be worse now because growth is in a danger zone.

"Big shocks for weak economies that don't have cushions to withstand them could lead to unexpected recessions," the former Morgan Stanley Asia chairman told CNBC's "Trading Nation" on Monday.

Even though Roach believes Chinese officials are taking more aggressive action to fight the coronavirus than during the SARS outbreak, he cautions that there could still be problems for months.

'A frightening outbreak'

"It's a frightening outbreak especially when it spreads this rapidly," said Roach, who's now a Yale University senior fellow.

So far, there are more than 4,500 confirmed cases in China and 106 people have died from the infection. The first cases were diagnosed in Wuhan, China, less than a month ago.

During the SARS epidemic, the World Health Organization reports 774 people died, and more than 8,000 people were infected.

If authorities manage to contain the new virus quickly, then Roach suggests the economic impact would be muted.

"Hopefully, as was the case during the SARs-related disruption of 2003, this will be a temporary disruption to the China and world economy, followed by a post-virus rebound in the second half of 2020," Roach wrote in a special note to CNBC. "But with China and the world on a far weaker growth trajectory, this could be wishful thinking."

Roach believes investors should remain vigilant.

"You can't just dismiss this as an non-event in the context of what appears to be ongoing growth around the world," added Roach. "Growth is weak and lacking in resilience it might otherwise have."

On Monday, virus fears weighed heavily U.S. stocks. The Dow and S&P 500 posted their worst days since October, and the tech-heavy Nasdaq saw its worst showing since August.


Coronavirus fallout could shock the global economy, Stephen Roach warns