The coronavirus outbreak is roiling markets, but does it pose a threat to global growth in 2020?
Markets have fluctuated materially in recent days as investors assess the potential impact of the Novel coronavirus outbreak. The virus has spread rapidly throughout China, and cases have been reported as far away as the UK, Europe and North America.
Little is known about the virus, although it emerged in early December 2019 in Wuhan, the largest city in central China’s Hubei province. Investors are concerned that the virus could spread more widely and result in economic growth fallout.
Our central view for global growth remains a gradual pickup to trend over 2020, but the impact of the virus will certainly detract from growth in the first half of the year, at least. Early estimates suggest the detraction in Chinese growth for the first quarter of 2020 will range from 1.0% to 2.0%, implying around 0.2% to 0.4% negative drag off global GDP growth (year on year). Specifically, the service sector may be hard hit in the short term.
We believe volatility will likely remain elevated in equity markets and in the Chinese yuan over the coming weeks as more news on the virus emerges. Although the virus may lead to short-term and potentially even medium-term disruptions, we retain our view that global growth should return to trend levels over the course of the year.
In our most recent Global Dynamic Asset Allocation report, we became more optimistic on the outlook for emerging market equities, in light of our expectations that global growth should return to trend levels in 2020 from below trend levels in 2019, as well as in light of reduced trade tensions between the United States and China.
Although the virus may lead to disruptions, we retain our view that global growth should return to trend levels over the course of the year, especially on more supportive central bank policies. What impact and opportunities relating to emerging market equities? Should investors make any shifts of their allocations? Speak with our consultants on our short and longer term views.