Economic implications of the coronavirus

Raphie Hayat et al. (Rabobank) | The coronavirus that is currently spreading in China and beyond its borders, has financial markets rattled. Experience with virus outbreaks in the past shows that markets often bounce back quickly

The economic impact on China hinges on the ability of the Chinese government to contain the virus and its policy actions to mitigate the impact

Even if the virus outbreak turns out be comparable to SARS, its global economic effects are likely to be larger than in 2002/2003, as China has a much bigger share in the global economy nowadays. Moreover, economies are much more interlinked than 17 years ago

With global economic growth already in a deceleration phase, the virus is another risk that supports our view that we will see global recession this year and that central banks in developed markets will probably have more work to do in terms of stimulus

At this point, we don’t expect any permanent damage of the epidemic to the Chinese economy or other regions across the globe. In the past, economies have shown to make up for temporary losses after the dust had settled

Although the current crisis could make it even harder for China to live up to its recent pledge to crank up US imports of goods and services by USD 200bn goods over the next two years, we don’t foresee an additional negative effect on US‐China trade relations as the Phase One deal clearly mentions exemptions in case of a natural disaster

However, in case of a further spread of the virus globally or in case of defaults among China’s highly indebted non‐financial corporates due to the containment measures, the risk of permanent damage increases significantly

For The Netherlands the effects will likely be indirect, via global growth, trade and sentiment. However, specific sectors supplying marine equipment, machinery and chemicals to Wuhan could also be hit

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