Business Maverick

Business Maverick

Coronavirus May Cause 6% Contraction in China’s GDP: Pimco

A handout photo made available by the Lagos State Ministry of Health shows health workers working in a quarantined area of the Infectious Disease Hospital in Yaba, Lagos, Nigeria, 27 February 2020. (Photo: EPA-EFE/LAGOS STATE MINISTRY OF HEALTH)

The economic fallout from the deadly coronavirus may cause a 6% contraction in China’s first-quarter gross domestic product, according to Pacific Investment Management Co.

The Chinese GDP contraction, which would be at a quarterly annualized rate, would push down year-on-year growth to 3%, compared with 6% expansion last year, Nicola Mai, a portfolio manager and head of sovereign credit research in Europe, and Tiffany Wilding, a U.S. economist, wrote in a blog post published on Friday. The impact of this will be felt around the globe as China accounts for a quarter of worldwide manufacturing activity, they said.

“The longer quarantines depress Chinese economic activity, the more economic costs will rise,” Mai and Wilding wrote. “It’s both a supply and demand shock. For most countries, there will be a direct hit as exports to China slow.”

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The biggest concern is the uncertainty still surrounding the outbreak, whose tail will first hit economies across Asia from Japan to Malaysia before impacting Europe, they said. The energy, automotive and airline sectors are the areas most at risk.

Their view chimes with Goldman Sachs Group Inc. economists who said in a report Friday that global GDP will shrink on a quarterly basis in the first two quarters of this year before rebounding in the second half.

Mai and Wilding also wrote that once the outbreak abates economic growth should bounce back. They expect a Federal Reserve interest-rate cut of up to 50 basis points at the next policy meeting and said the European Central Bank may also need to act.

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