The coronavirus outbreak is dangerously close to shrinking global growth this quarter, UBS warns
- The coronavirus' effect on the world economy is driving growth near negative levels in the first quarter of 2020, UBS economists wrote Tuesday.
- The bank's estimate sees the hit to China's economy accounting for most of its updated forecast, with disruptions in Thailand, Singapore, and Hong Kong also weighing on global expansion.
- UBS's guidance doesn't take supply chain slowdowns into account, and Apple recently warned the hit to iPhone production will drive revenue below its initial estimate in the quarter ending in March.
- Visit the Business Insider homepage for more stories.
Coronavirus' fallout is already showing up in companies' guidance and market reactions. Now UBS economists expect the pandemic to drag global growth near negative levels in the first quarter.
The bank's "global now-cast" metric showed growth surging throughout Asia before the coronavirus outbreak. But its latest reading projects a global growth increase of just 0.5% during the first three months of the year. The rate of expansion is down from the 3.5% level expected earlier in the quarter.
The virus' hit to China's economy accounts for most of UBS's lowered guidance, with disruptions in Hong Kong, Thailand, and Singapore also dragging the metric lower. Any growth level below zero reflects a contraction in the global economy, and consecutive quarters of contraction mark a global recession.
UBS' global growth forecast doesn't take supply chain slowdowns into account, added the team, led by Arend Kapteyn. Apple is among the latest firms to update their guidance on the virus' hit to manufacturing. The iPhone maker announced on Tuesday its revenue for the quarter ending March will fall below its initial estimate, citing a temporary hit to global phone supply. Apple shares fell as much as 3.2% on the news.
UBS expects central banks to stay in a "wait-and-see mode," holding off on any stimulus as economic data reflecting the outbreak's fallout trickles in. The Federal Reserve will likely hold its benchmark interest rate steady until inflation rises to its 2% goal. The European Central Bank "is largely on autopilot" while it focuses on a strategy review, the team wrote. Even Japan's central bank is expected to stay patient despite the nation seeing its first virus-related death on February 8, UBS said.
Even if the bank's latest guidance reflects an ominous outlook for the world economy, containment of the virus will drive a sharp recovery. Delayed consumption and investment, along with economic stimulus, "should lead growth to snap back sharply ... similar to what one would see after a natural disaster," the team wrote on Tuesday. The net effect on annual growth is a less-worrisome 0.2 percentage point reduction, they added.
Coronavirus' death toll reached 1,875 people on Tuesday, with more than 73,000 people now infected across at least 26 countries. Only five deaths have been reported outside mainland China, with single fatalities in Japan, Hong Kong, the Philippines, Taiwan, and France.
Receive a cellphone message every morning with all our latest news: click here.
Also from Business Insider South Africa:
- SA’s minimum wage is increasing on 1 March - here are the new minimums for domestic workers and others
- The City of Cape Town currently has nearly 3,300 jobs available - here’s how to apply
- Magda Wierzycka's Sygnia involved in 'wrangling' over an Oxford science fund
- The most famous South African house on Twitter is still for sale – despite many claiming they’ve bought it
- Load shedding is ruining TVs, monitors, routers - and food
- South Africa had the worst CA results in many years - but one audit firm delivered the most top performers
- This 19-year-old developed soccer shoes for SA’s gravel pitches
- You can now RICA your SIM-card online at Vodacom and Rain - and MTN promises to improve the service soon
- Xenophobia isn't keeping immigrants out of SA – here are the latest, if contentious, numbers
- You may soon be able to service your car where you like – if the Competition Commission gets its way