Coronavirus strikes at a delicate time for the global economy
For the first time since the beginning of the crisis, last week saw a simultaneous slowdown in growth of new coronavirus cases recorded in Hubei, the rest of China and worldwide. If confirmed, this development would suggest that preventive measures are bearing fruit and the economic damage can be limited.
However, the quarantine measures imposed inside and outside of China in addition to flight cancellations will already have had a significant impact on Q1 statistics. Recent days have seen numerous anecdotes of production stoppages in the car and electronics industries due to lack of inventories and some airline companies have extended their ban on flights to and from China until mid-March.
At this stage, it appears unlikely that the outbreak will last beyond Q2, as the virus thrives in the cold. Warmer weather in April and May should bring a natural end to the outbreak. The world economy could certainly cope with one bleak quarter, which could spark a recovery in Q2. Accelerated production of goods will compensate for the delays and disruptions that have occurred in the global supply chain due to the virus outbreak. But this is less true for services. Because they are intangible, tourist stays, flights, and hotel and restaurant bookings lost in Q1 are less easily recoverable.
Measures taken to fight the virus outside of China seem to be effective. On 6 February, there were a total of 216 confirmed cases in the rest of the world compared to 28,060 in China. Should the virus’s spread be contained, there should be only limited impairment of mobility (for persons and goods) outside of China. The impact of the coronavirus on the world economy would therefore be limited.
Nonetheless, the coronavirus outbreak has come at a delicate time. Global leading indicators for manufacturing were just beginning to show signs of recovery after 18 months of deterioration triggered by the trade war and issues in the car industry. The global manufacturing purchasing managers’ index (PMI) was just slightly above the 50 threshold (50.4) in January, suggesting slightly positive growth in industrial production. Some leading exporting countries recorded just their first PMI rebound in December, but most still show negative year-on-year growth.
It is still early to assess the final impact, but it is clear that Q1 economic data will be impacted by the coronavirus outbreak, particularly in Asia. As a result, our Chinese GDP forecast has been revised from 5.9% to 5.6% this year. Emerging Asia growth has also been revised downward and we have revised our world real GDP growth forecast from 2.9% to 2.8% for this year.
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