As Covid-19 (coronavirus) keeps spreading and the death-toll is rising on a daily basis, the UK is waiting to see what will happen next as France confirmed Europe’s first fatality over the weekend.
As Covid-19 (coronavirus) keeps spreading and the death-toll is rising on a daily basis, the UK is waiting to see what will happen next with France confirming Europe’s first fatality over the weekend.
Despite this, equity markets hit new highs on the back of the near-conclusion of a much better than expected US earnings season, according to global audit, accounting and consulting group Mazars.
“From a narrative perspective, we have passed from “The Coronavirus is contained” to “the Coronavirus will in all likeliness have a short-term effect in Q1 output”, much like SARS did in 2003. The truth is that we still know little of the virus,” said George Lagarias, chief economist at Mazars.
While the outbreak is in a reasonably contained territory, diagnosis is still lacking and containment becomes more difficult over time, in Lagarias view. “Last week, Harvard T H Chan School of Public Health professor Marc Lipsitch told the Wall Street Journal that a global pandemic affecting as much as 70 per cent of the population is “likely”. With a 1 per cent to 2 per cent mortality rate (depending on the country and quality of healthcare services) this scenario would mean anywhere between 50 to 90 million deaths – which would clearly have more than a “temporary” effect on the global economy,” he said and added: “It would probably even affect the buoyant and exuberant stock markets which seem to be on a permanent liquidity high.”
Even though the situation is tragic on the ground, “we must consider that coronavirus news is less powerful than the ability of central banks to fuel higher prices for risk assets”, from an investment perspective, according to Lagarias.
Passenger traffic in China is down by around 60 per cent compared to the same period around the Lunar New Year holiday last year. Neil Shearing, group chief economist at Capital Economics, said that the past week has brought the first evidence of the economic damage caused by the coronavirus, and that the numbers are “stark”.
“There are also signs that the disruption is starting to spread to neighbouring economies through supply chains,” said Shearing. “The spread of the virus has created a cottage industry for economic forecasters. It is now all but certain that China’s economy will contract in quarter-on-quarter terms in Q1,” he added.
Based on data, Capital Economics has pencilled in a fall in output of 2.5 per cent q/q (-10 per cent annualised) on its CAP measure in the first quarter.
The London-based economic research consultancy believes that activity should rebound relatively quickly with lost output recovered over the rest of this year if workplaces reopen soon.
