The ongoing coronavirus outbreak could cause the biggest slowdown in global economic growth since the 2008 financial crisis, according to analysts at UBS.
In a Monday note charting its outlook for 2020, the Swiss bank said while economic growth in Asia excluding China and India had accelerated in the first quarter of the year, they feared the coronavirus outbreak could “squash this positive momentum” and predicted that the start of 2020 “could be one of the lowest quarters of growth on record”.
The bank’s analysts are expecting a “sharp drop” in global growth to around 0.6% for the first quarter from previous estimates of just over 3%, followed by a strong rebound in the second and third quarters.
The slowdown is forecast to be similar to that caused by the 1997 Asian financial crisis, which caused global growth to grind almost to a halt.
UBS’s assessment highlights the jitters among investors as the outbreak continues to spread and forces more governments and businesses to quarantine or restrict population movement to contain the virus.
Concerns have been elevated by the fact that China, the world’s second-largest economy, has effectively been put on lockdown with entire cities and provinces under quarantine.
Over the weekend, coronavirus surpassed the 774 deaths caused by the 2003 outbreak of severe acute respiratory syndrome (SARS), with 910 people having died while more than 37,000 are estimated to be infected.
On Monday, UK health authorities said a total of eight patients had tested positive for the virus in the country and declared that the infection was a “serious and imminent threat” to public health.
The FTSE 100 dropped 24 points to 7,442 in mid-afternoon trading following the news.
Retailers exposed to slowdown
A number of industries are acutely exposed to a slowdown in the Chinese economy, particularly retailers that rely on the spending power of Chinese consumers for large segments of their revenues.
Last week, luxury clothing brand Burberry Group PLC (LON:BRBY) said it had closed over a third of its stores in China due to the impact of the virus, while the rest have seen “significant” declines in customer footfall.
Other companies are exposed to the outbreak through their supply chains, which often source most of their products from factories based in China.
These firms include:
- Ted Baker (LON:TED) – Sources over 50% of its products from China
- Joules Group (LON:JOUL) – Vast majority of products made in eastern China
- B&M European Value Retail (LON:BME) – Relies on Chinese merchandise for 40% of group sales
- Halfords Group (LON:HFD) – Sources 80% of its products from outside the UK, most of which comes from the Far East
- DFS Furniture (LON:DFS) – Has two factories in China that make 25% of its sofas, one of which is located four hours away from the city of Wuhan, where the virus first appeared
- UP Global Sourcing (LON:UPGS) – The maker of branded kitchenware warned on Monday that the virus would likely cause production delays, given that most of its manufacturing sites were in China
- Volex PLC (LON:VLX) – Cable maker backed by Nat Rothschild said only one of its four factories in China is running.
- Tandem Group (LON:TND) – Toymaker said on Monday that coronavirus was a “significant threat” that was hindering the movement of raw materials and labour throughout China and had already led to a number of order delays.
As big as Apple Inc (NASDAQ:AAPL) is, the tech giant also faces a major threat to its supply chain because of the outbreak, as Taiwan's Foxconn, which runs the world’s largest iPhone factory in the city of Zhengzhou, was denied permission by Chinese authorities to reopen this week amid efforts to quarantine the virus. Apple has also closed all of its stores in mainland China as a result of the outbreak.