Stagnating European Economy Is A Candidate For Coronavirus Shock From China

Amidst resurging fears of a European recession after the last quarter of 2019 turned out a no growth year for Germany and as the deadly coronavirus threatens to drastically reduce exports to China.

There was no growth in the German economy in the last quarter of 2019 which indicates some issues for the country’s economy in 2020 just at the time when it was being expected that the country would stage a revival.

The impact of the growth slump in the German economy – the fourth largest in the world, impacted the entire eurozone which reported a growth of just 0.1 per cent in the last quarter of last year which was a 7 year low.

Considering this situation, experts now view Europe to be particularly vulnerable for an impending hit from the coronavirus outbreak in China and elsewhere.  A total of over 64,000 people globally have been infected and most parts of the Chinese are yet to start functioning since it went on a holiday at the beginning of the Lunar New Year festivals.

“The [eurozone] economy should be about to turn a corner, but the coronavirus now means that [the first quarter] could well be a write-off,” Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said in a research note.

Germany, a majorly export dependent economy, suffered right through 2019 because of a slump in global auto demand and sale as well as the US-China trade war and the uncertainty over Brexit. The economy clocked a dismal 0.6 per cent growth for the entire 2019.

There was some optimism among economists about a kick start in the German economy early in the current year after poor performance of its manufacturing sector last year.

Optimism was however hit by the outbreak of the coronavirus in late January as China virtually closed down and the virus started spreading ot countries outside of China as well.

Auto is one of the major export items for Germany and German auto makers do quite a sizable business in China. Major German auto brands were able to sell less than 2 million cars in China in January which was 18 per cent lower than the same period a year ago.

“The impact from the coronavirus on the Chinese economy is likely to delay any rebound in the manufacturing sector as it at least temporarily disrupts supply chains,” Carsten Brzeski, chief German economist at ING, wrote Friday.

That has stoked up fears of a potential recession in Germany – which technically happens when there are two consecutive quarters of negative growth. A recession in the first half of the year “quite probable”, said Deutsche Bank in a note to clients earlier this week.

In the first half of the current year, there would likely hardly be any growth in the German economy, said Andrew Kenningham, chief Europe economist at Capital Economics. He added that would mean a recession is “absolutely on the cards.”

“If you’re forecasting zero [growth], then it’s definitely fair to be talking about a potential recession,” he said.

That is bad news for Europe as a whole.

According to predictions of Kenningham, the growth in the first quarter for eurozone will be at about 0.1 per cent which is likely to increase to 0.2% in the second quarter of the current year. He further estimates that the annual growth of the region will be lower than that of 2019 given that the growth at the beginning of the year will be stalled.

“Looking forward, the coronavirus provides a substantial risk for the expected global recovery, as hopes were pinned on an improvement of the Chinese economy,” Deutsche Bank said in its note.

(Adapted from CNN.com)



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