Coronavirus will hurt spending in China, with spillover to global companies

On Wednesday, the World Health Organization said that China’s coronavirus has infected nearly 6,000 people domestically so far, with an additional 68 confirmed cases in 15 other countries.

The primary impact is on human health. However, the risk of contagion is affecting economic activity and financial markets. The immediate and most significant economic impact is in China (A1 stable) but will reverberate globally, given the importance of China in global growth as well as in global company revenue.

By sector, the coronavirus will likely have the largest negative impact on goods and services sectors within and outside of China that rely on Chinese consumers and intermediary products.

China’s annual GDP growth forecast unchanged so far, but composition could shift

In our baseline, we expect the outbreak to have a temporary impact on China’s economy and for annual GDP growth in China to remain in line with our forecast of 5.8% in 2020.

However, the composition of growth will likely shift because of a dampening of consumption in the first quarter, potentially offset by stimulus measures.

Nonetheless, there is still a high level of uncertainty around the length and intensity of the outbreak, and we will review our forecasts as conditions evolve.

Excerpt from “Moody’s Sector Comment“, 30 January 2020 issue.