The coronavirus is causing ‘a clear shock to the world economy’, according to Columbia Threadneedle. Janus Henderson calls the global spreading of the coronavirus ‘a real game changer that has dashed hopes of a V-shaped recovery in global growth.’
‘So far we are seeing two clear consequences: lower consumption and less supply,’ says Neil Robson of Columbia Threadneedle. He illustrates the first concern citing the Adidas market update last week, showing a 85% decline in activity in China.
‘A disaster, but fortunately a temporary one’, he says. Robson expects consumption to return to trend within a few months. ‘I suspect, however, that a significant part of the drop in consumption has been lost forever. People will still buy a new smartphone later, but probably not a new spring outfit.’
On the second concern, the supply disruption, Robson notes that he sees clear evidence of a shortage of critical components that could lead to lower production. ‘Apple announced this last week, and we’ll hear more of this kind of messages.’
He expects the coronavirus outbreak to lead to a global industrial recession similar to the 2012 euro crisis, the plunge in oil prices in 2014-2015 and the slowdown in trade in 2018-2019. However, the good news is that none of these events led to a general recession. ‘Given the temporary nature of the coronavirus, we are not anticipating it this time either.’
Game-changer
Paul O’Connor, head of Multi-Asset at Janus Henderson Investors, calls the globalization of the coronavirus a real game-changer.
‘It has dispelled hopes of a v-shaped recovery in global growth and rekindles fears of recession. Until recently, the market assumed the virus would be controlled relatively rapidly with the energetic policy response from the Chinese authorities. However, geographical expansion has undermined this scenario’.
The situation is so volatile now that estimates of the potential economic impact of the epidemic are highly speculative, believes O’Connor. ‘However, it is clear that the outlook for the global economy has deteriorated significantly in just a week’s time. Disruptions to normal economic activity are spreading rapidly in many countries and the constant stream of worrying new developments will undoubtedly weigh heavily on consumer and business confidence,’ he says.
Amundi, too, has a gloomy outlook. According to Group CIO Pascal Blanqué and Deputy Group CIO Vincent Mortier, the coronavirus adds even more risk to the already weak trend for economic growth.
Blanqué and Mortier recommend European investment grade credits and US treasuries as a good risk hedge.
Alliance Bernstein, on the other hand, is a little more optimistic. Although Jenny Zeng, head of Asia Pacific fixed income, Mo Ji, chief economist Greater China and Hua Cheng, research analyst corporate bonds, acknowledge that the coronavirus is one of the biggest threats to Chinese economic growth in 2020, they believe the fear of a negative market impact and a wave of bankruptcies is exaggerated.
According to the three, the Chinese economy is more resilient than we think, thanks to the good liquidity and stability of the Chinese financial system, among other things. Especially if the virus is contained in the first half of the year, the damage will be less than expected. In that case, the asset manager assumes a negative impact of 1 percentage point on the gross national product. If this does not succeed, the impact will increase to 1.9 percentage points.