The coronavirus epidemic creates new risks to the prospects of an incipient stabilization of global growth this year resulting from a truce in the US-China trade war and emerging signs of a pickup in the industrial sector. Moody’s Investors Service has revised its global growth forecasts down by two- tenths of a percentage point, now expecting G-20 economies to collectively grow at an annual rate of 2.4% in 2020. The rating agency has also revised downward the GDP growth forecasts for China to 5.2% in 2020, and maintains expectation of 5.7% growth in 2021.
“The outbreak will first and foremost hurt China’s economy by lowering discretionary consumer spending on transportation, retail, tourism and entertainment. There is already evidence - albeit anecdotal - that supply chains are being disrupted, including outside China. Furthermore, extended lockdowns in China would have a global impact given the country’s importance and interconnectedness in the global economy,” says Moody’s Vice President Madhavi Bokil.
“With the virus continuing to spread within China and to other parts of the world, it is still too early to make a final assessment of the impact on China and the global economy.”
The toll on the global economy would be severe if the rate of infections does not abate and the death toll continues to rise. If the outbreak persists, the domestic and international supply chain disruptions are likely to become significant, amplifying the shock to the global economy. Global companies operating in the affected areas would face output losses as a result of the extended closures of businesses and factories. Companies that operate outside China but depend on inputs from the affected area would face temporary production delays. In addition, the negative spillover would also affect countries, sectors, and companies that either derive revenue from or produce in China, or rely on Chinese demand.
Apart from China, Moody’s has also reduced the growth forecasts of Korea, Japan and Australia on account of the coronavirus outbreak. The negative shock to China’s economy has the potential to harm the stabilization and recovery of other economies through trade and tourism channels. Growth forecasts for advanced economies are mostly unchanged.
Among emerging market countries, Moody’s has materially revised downward the growth forecasts for India, Mexico and South Africa, reflecting domestic challenges rather than external factors.
Mppdey’s also adds that quarantine policies and travel restrictions are dampening economic activity in China.
The government and the private sector will likely slowly relax these policies once the rate of new infections meaningfully falls. In our baseline forecast, we assume the rate of disease transmission will slow in the coming weeks. Under this assumption, the economic impact will be limited to Q1 and a level of normalcy will be restored by the beginning of Q2.
Even so, we estimate that this episode will shave 0.6 percentage point from China’s GDP growth in 2020. Accordingly, we have revised our GDP growth forecasts for China to 5.2% in 2020 from 5.8% previously.
For 2021, we maintain our expectation of 5.7% growth. This forecast assumes normal economic activity will be restored, but that the loss of economic activity in Q1 2020, particularly around the Lunar New Year, will not be recovered. Consumers are likely to remain cautious for some time. This is reinforced by the fact that the economy continues to slow as a result of long-term structural factors.
“We expect the negative shock to economic activity in China to also spill over to other Asia-Pacific countries through tourism and temporary disruptions of supply chains. Therefore, in addition to the revisions to our China forecasts, we have also lowered our 2020.”
“We expect the negative shock to economic activity in China to also spill over to other Asia-Pacific countries through tourism and temporary disruptions of supply chains. Therefore, in addition to the revisions to our China forecasts, we have also lowered our 2020 growth expectations for Korea by 0.2 percentage points and for Japan by 0.1 percentage points.
“Australia’s exports to China will likely suffer in the short term, which has prompted us to revise downward our 2020 growth projection for the country by more than we otherwise would have.”
0 comments: