Morning Notes — Global Growth

While the current coronavirus outbreak continues to dominate headlines, it’s important to keep the pre-existing theme in mind, which included a global economy free of last year’s trade drags and ample policy stimulus. This outbreak may prove to be more economically damaging to China than SARS given China’s travel restrictions and business closures this time around. It’s estimated than nearly 75% of China’s Industrial Production is currently shut-down at least through this week. And early estimates of a 1% hit to Q1 GDP sound too-low, but if production cutbacks really only last a few weeks, the impact may largely be absorbed by existing China and regional inventory. Meanwhile, lower oil prices and lower interest rates act as market-based offsets. And China has already stepped up policy stimulus. If the number of confirmed cases begins to decline within the next month or so, the impact on global growth may wind up being fairly small and the recovery (mid-year) may wind up moving beyond prior estimates. Today’s release of final January PMIs saw the aggregate global manufacturing PMI increase from 50.1 to 50.4 on increasing new orders and declining inventories.