When China sneezes, the world economy catches a cold.
Economists are already downgrading their expansion forecasts for the United States due to the spread of the coronavirus that originated in China and weighs heavily on China’s economy, the world’s second-largest after the U. S. economy.
JP Morgan lead economist Michael Feroli describes a cascading effect of the sharp deterioration in China’s expansion speed in the first quarter.
“In light of the 5. 3-point drop in our colleagues’ estimate of annualized real GDP expansion in China in the first quarter, we are cutting our estimate of U. S. expansion in the first quarter by 0. 25 points, to 1. 0%,” Feroli wrote in a survey. note.
“The domestic economic consequences of the coronavirus remain uncertain and today’s review deserves to be considered as a first reaction,” he adds with concern.
The surprise will basically come from a sharp expected 8% drop in US exports to China, JP Morgan economists estimate.
They see the drop as transitory and largely a reversal, but this is based on the tenuous assumption that Chinese factories will reopen on Monday.
“The normalization of activity after what is expected to be a temporary slowdown produces a 0. 25% increase in our expansion forecast for the second quarter, up to 1. 75%,” Feroli said.
“Our Chinese colleagues are conditioning their forecasts on the assumption that factories will reopen on February 10. We do not anticipate any significant effect on U. S. expansion similar to chain of origin distortions. Nor do we see any negative effect on confidence, on economic activity.
Not yet, anyway.