Author:
Date published:
28 February 2020
2 mins
The coronavirus outbreak spreads outside of China;
- The spread of the coronavirus outside of China dominated economic and financial news. With governments prioritising the spread of the virus against the cost of economic disruption, many countries closed its borders with Italy and Iran after becoming major centres of infection, and the Japanese government ordered schools to close from 2 March until early April. Economists now expect that the global economy will contract in Q1, with questions over how persistent the disruption will prove to be, especially in global supply chains.
- Financial markets closed the week with the sharpest fall in global equities since the 2008 crisis. Shares in airlines were especially hit, reflecting the disruption to travel and tourism. It is estimated that more than 83,000 people have been infected globally, 2,858 have died, and a total of 46 countries affected.
- In the US, durable goods orders were stronger than expected, suggesting a stabilisation in manufacturing activity. Capital goods orders excluding transport rose 0.9% over the month in January, with broad based increases across industries. However, disruptions to Boeing production and the coronavirus outbreak are likely to distort Q1 GDP data.
And governments across the world start to react
- Governments are starting to provide economic support to manage the economic disruption from the coronavirus outbreak. In China, the authorities have focused on liquidity measures, and guiding borrowing costs, and targeted fiscal measures. In Hong Kong, the government announced a large stimulus package worth HKD120bn (or 4.1% GDP), of which a large portion represents cash handouts to adult permanent residents (2.4% GDP, or around $1,300 each person) in order to support household consumption. Malaysia also unveiled a stimulus package worth RM 20bn (1.2% GDP), focused on supporting households, subsidised credit, and investment incentives for the private sector.
- The Bank of Korea surprised markets by not cutting policy rates despite downgrading growth forecasts. Governor Lee Ju-yeol said that the appropriate response to the virus outbreak would be to support companies by targeted micro-policies, rather than to deliver a wide and blunt cut in policy rates.