Morgan Stanley warns coronavirus could drag on global, Chinese GDP growth

[LONDON] Morgan Stanley said on Wednesday the coronavirus outbreak in China was likely to hurt global growth in the near-term and could shave up to 1 percentage point off Chinese growth in the first quarter.

Assuming the coronavirus peaks in February or March, global economic growth could be reduced by 0.15 to 0.3 percentage point during the first quarter, the bank said.

The United States and Japan flew their nationals out of China's virus epicentre on Wednesday, and some big-name airlines suspended flights, as deaths leapt to 133.

"There should be some adverse impact to 1Q20 global growth," Morgan Stanley said, referring to the first quarter of this year. "But as the underlying drivers of the global recovery remain intact, growth should get back onto the recovery path once the effects of disruption fade."

If the outbreak continues for three to four months, global growth could be further hit by about 0.2 to 0.4 percentage point in the second quarter, it said.

Most major central banks like the US Federal Reserve and the European Central Bank will stay in a dovish holding pattern as they assess the impact of the outbreak, it said.

In China, it said travel, entertainment and retail could be most affected and extended factory suspension could weigh on industrial output and trade.

If the virus peaks in February or March, first-quarter growth in the world's second-largest economy could suffer by 0.5 to 1 percentage point, although recovery beyond the period could be intact amid restocking demand and counter-cyclical policy.

But if the virus instead peaks in three to four months, first-half Chinese growth could be dragged down by 0.6 to 1.1 percentage points, although that could be partly offset by stronger policy support.

China's A-share market will likely open lower on Feb 3 after the Lunar New Year holiday and Chinese and Hong Kong equities, as well as other equity markets in North Asia, will likely underperform global and regional benchmarks during the escalation phase of the outbreak, Morgan Stanley said.

Still, it said there was no change to its 2020 target levels for the key MSCI China and CS1300 indexes, implying an upside of 1 per cent and 4 per cent respectively from where the markets were trading before the holidays.

REUTERS