Early predictions about its economic impact were reassuring. Similar epidemics — such as the 2003 outbreak of severe acute respiratory syndrome (Sars), another China-born coronavirus — did little damage globally. At the country level, GDP growth took a hit, but quickly bounced back, as consumers released pent-up demandand firms rushed to fill back orders and restock inventories.

It is becoming increasingly clear, however, that this new coronavirus is likely to do much more damage than Sars. Not only has Covid-19 already caused more deaths than its predecessor, its economic consequences are likely to be compounded by unfavourable conditions, beginning with China’s increased economic vulnerability.

Its economy has grown significantly more slowly in the last decade. Of course, after decades of double-digit growth, that was to be expected, and China has managed to avoid a hard landing. But its banks hold large amounts of non-performing loans — a source of major risks.

As the Covid-19 outbreak disrupts economic activity — owing partly to the unprecedented quarantining of huge subsets of the population — there is reason to expect a sharp slowdown this year, with growth falling significantly below last year’s official rate of 6.1%. During the recent meeting of G20 finance ministers, the IMF downgraded its growth forecast for China to 5.6% for 2020 — its lowest level since 1990.

This could hamper global growth considerably, because the world economy is more dependent on China than ever. In 2003, China constituted only 4% of global GDP; today, that figure stands at 17% (at current exchange rates).

Moreover, because China is a global supply-chain hub, disruptions there undermine output elsewhere. All of China’s major trading partners are vulnerable. For example, Japan’s economy already contracted at an annualised rate of 6.3% in the fourth quarter of 2019, owing to last October’s consumption-tax hike. Add to that the loss of trade with China, and a recession — defined as two consecutive quarters of shrinking GDP — now seems likely.

European manufacturing could also suffer considerably. Europe is more dependent on trade than, say, the US, and is linked even more extensively to China through a web of supply chains.

All of this could happen even if Covid-19 does not become a full-blown pandemic. In fact, while the virus is proliferating in some countries, such as South Korea, a high infection rate is not a prerequisite for economic hardship. The spectre of contagious disease tends to have a disproportionate impact on economic activity, because healthy people avoid travelling, shopping, and even going to work.

Some still cling to growth optimism, rooted in recent trade agreements negotiated by US president Donald Trump’s administration: The “phase one” deal with China and the revised free-trade agreement with Canada and Mexico. While they are far better than they would have been had Trump stuck to his hardline positions, they do not represent an improvement over the situation that prevailed before he took office; if anything, their net impact is likely to be negative.

Consider the deal with China: Not only does it leave in place high tariffs, it also remains fragile, owing to a lack of credibility on both sides. In any case, its impact is likely to be limited. China may not be able to deliver on its promise to purchase an extra $200bn worth of goods from the US, and even if it does, that is unlikely to translate into higher US exports. Those exports will simply be diverted from other customers.

While global recessions are exceedingly difficult to forecast, the odds of one — particularly one characterised by less than 2.5% growth, a threshold set by the IMF — now seem to have risen dramatically. So far, US investors seem unconcerned about the risks. But they may be taking too much comfort from the US Federal Reserve’s three interest-rate cuts last year. Should the US economy falter, there is nowhere near enough room for the Fed to cut interest rates by 500 basis points, as it has in past recessions.

Even if a recession does not materialise in the near term, Trump’s approach to trade may herald the end of the era when steadily rising international trade (as a share of GDP) buttressed global peace and prosperity. Instead, the US and China may continue on the path towards economic decoupling, within the context of a broader process of deglobalisation. Covid-19 did not place the world’s two largest economies on this path, but it could well hasten their journey along it.

Jeffrey Frankel, professor of capital formation and growth at Harvard University, previously served as a member of president Bill Clinton’s council of economic advisers. He is a research associate at the US National Bureau of Economic Research, where he is a member of the business cycle dating committee, the official US arbiter of recession and recovery.