Economy

How the Coronavirus Will Harm GDP and Businesses in 2020

There are other independent reports and media reports showing specific instances of harm where China and outside nations will be facing pressure in the first quarter. All of this is likely to see a snap-back once the effects of the coronavirus come to pass. That may be part of the explanation of why U.S. stocks just hit all-time highs in the Dow Jones industrials, S&P 500 and Nasdaq all over again.

A report from the South China Morning Post reported that the falling fiscal revenues of 2019 will restrict Beijing’s ability to boost spending in 2020 to maintain stronger growth targets amid the coronavirus outbreak. It noted that China’s fiscal revenue growth of just 3.8% in 2019 (down from 6.2% in 2018) was the slowest growth rate since 1987 — and that data covered a period that was pre-coronavirus. Another fresh report from the site AsiaTimes.com warns that millions of small businesses are now at risk in China as well.

Capital Economics has an ongoing update on the impact that the coronavirus is having on China and elsewhere. They showed charts and graphs covering road congestion (or lack of it), daily passenger traffic, passenger transport volume, coal consumption, property sales, wholesale food prices, overseas tourist spending and even supply chain issues.

There have been two fresh outlook changes covering the oil and gas trends for supply and demand in 2020 showing these are being hurt by the coronavirus. The International Energy Agency (IEA) cut its first-quarter forecast by 435,000 barrels a day and its full-year forecast by 385,000 barrels a day to 565,000 barrels and 825,000 barrels, respectively. The U.S. Energy Information Administration (EIA) showed that its new forecast is 900,000 barrels per day lower than its short-term forecast issued just a month earlier, citing the ongoing and growing effects of the coronavirus and also above-normal January temperatures over much of the northern hemisphere.

Fitch Ratings warned that the coronavirus adds to the structural troubles of the global automakers. With China now the largest car market on the globe, Fitch expects China car sales to dip until the virus outbreak is under control and expects that sales should start recovering from April forward into the second half of 2020.

Fitch also warned that sovereign and corporate issuers in South America would feel the coronavirus pressure. That warning was calling for slower Chinese demand and commodity price weakness from the coronavirus will hit South America’s issuers due to their high commodity export dependence and direct trade exposure to China. That report said:

Agriculture, mining and fuel shipments represent a material percentage of GDP for many Latin American countries and revenue for the region’s largest exporters with China being a key destination. More than 25% of Chile’s, Peru’s and Brazil’s merchandise exports go to China, according to International Monetary Fund Direction of Trade Statistics, and the ability to quickly redirect commodity exports to other countries will be a challenge. … Prior to the outbreak, our outlook for Latin America was for a mild economic recovery with fiscal, political and governability risks challenging the region’s economy and ratings in 2020. Coronavirus introduces a new downside risk to growth expectations… Prices for copper, aluminum, iron ore, zinc and oil noticeably declined after the coronavirus outbreak, which led to aggressive government restrictions on travel and other economic activities.

S&P Global has pointed out how the coronavirus is dashing the hopes for the global auto trends at this time as well. As of February 11, S&P’s assumption was that the coronavirus outbreak will be contained in March. The group also suggested that U.S. GDP growth would drop to roughly 1% in the first quarter. S&P’s Beth Ann Bovino was recently quoted:

We expect most of the drag on U.S. growth to be in the first quarter, with a smaller hit in the second quarter and a rebound in the latter half…. Along with the potentially devastating human toll, if the virus spreads further and lasts longer, the impact on virtually every economy could be far worse… We will be watching the numbers on the health of the U.S. economy, determining whether, and by how much, the coronavirus infects investment demand and consumer spending.

Moody’s recently signaled that the Chinese retail, travel and transportation sectors are among the most exposed to disruptions from the coronavirus. Two other prior Moody’s reports in recent days signaled that an extended coronavirus outbreak would increase demand for U.S. health care companies but with a warning that it could disrupt supply chains, as well as that a prolonged outbreak of the coronavirus will end up hurting banks’ profitability and asset quality in the Asia-Pacific region. Moody’s even warned that national property sales in China are likely to fall slightly in 2020 (and will weaken developers’ liquidity) against the backdrop of the coronavirus outbreak.

Cruises, which have been notorious for acting as Petri dishes for spreading illnesses, are getting hit. The Diamond Princess under quarantine in Japan and the MS Westerdam being turned away by five countries without having any suspected coronavirus cases has more than 1,400 people stuck with nowhere to go. A group called Thinknum has released alternative data on the cruise line industry showing how the spread of the coronavirus is affecting cruise line pricing and inventory. It pointed out data for Carnival Cruise Lines (NYSE: CCL) showing a real recent rise inventory of available rooms. Airlines have already felt the heat from the coronavirus and many flights in and out of China were simply canceled for the time being.