DOW Drops 300 Points On Concerns Coronavirus Will Dramatically Slow China’s Economy; Evercore ISI Chairman Sees Zero Percent Growth For China In The First Quarter Of 2020
It used to be said that when the “U.S. got a cold, the rest of the world got the flu.” That is, if our economy slowed, the rest of the world suffered even worse than we did. The U.S. is a $21T economy — China’s annual GDP is estimated at about $14T, and the world’s second largest. As I write this short note this afternoon, more coronavirus cases are sprouting up all over the globe. Thankfully, the viurs has not shown the lethality of past pandemics such as the 1918 ‘Spanish flu.’ Nonetheless, the virus is having a negative economic impact, especially in China.
China’s National Health Commission (Friday, Feb. 7), confirmed 31,131 cases of the pneumonia-like virus, and 636 deaths. Beyond the human tragedy and the fear of further spread, China’s short-term economic outlook looks grim. “China is really slowing, and that’s worrying people,” said Ed Hyman, Chairman of Evercore ISI on CNBC’s Squawk Box. “People are not going out. They’re not shopping, and that’s what’s particularly hurting China.”
Mr. Hyman added that he see’s “Zero percent growth for China,” in the first quarter of 2020. Haibin Zhu, a China equity strategist at JP Morgan, “also cut his China GDP growth estimate to one percent for Q1/2020,” wrote Fred Imbert on CNBC’s website.
The U.S. Federal Reserve Board released a statement today, saying the coronavirus presented a “new risk” to theeconomic outlook for the U.S. and warned of global disruptions,” according to Bloomberg News. “Becuase of the size of the Chinese economy, significant distress in China could spill overto the U.S. and global markets through a retrenchment of risk appetite, U.S. dollar appreciation, and declines in trades and commodity prices,” the U.S. Central Bank wrote inits semi-annual report released to Congress today.
Meanwhile, the People’s Bank of China (PBOC) “is preparing measuresincluding more spending and interest rate cuts,” in an attempt to spur economic growth, once the virus fear has subsided, Reuters News reported. China’s Vice Finance Minister also said that the country will cut taxes and fees, along with additional measures.
As I wrote a few days ago, China could have bigger problems down the road, as supply-chain diversification continues to accelerate. The coronavirus outbreak will only add impetus to this trend, as corporations and companies may well decide to move more of their business footprint off the mainland — before the next ‘coronavirus’ hits. There could be lasting, negative economic effects from this outbreak — that no economic stimulus measures may cure.