February 18, 2020 – In a report issued this week, Moody’s Investor Service opined that the coronavirus outbreak is likely to quell global growth this year. The rating agency reduced its 2020 growth forecast for G-20 economies from 2.6% to 2.4%. For China, Moody’s now expects growth of 5.2% from 5.8% previously.

As of today, about 1,500 people have died of the virus, with over 50,000 infected globally. Moody’s assumptions are predicated on a containment of the outbreak by the end of Q1, allowing for normal economic activities by Q2. Absent of a containment, the effects of the outbreak may be dire. Moody’s said:

“The effects on the global economy could compound if the rate of infection does not abate and the death toll continues to rise, because supply chain disruptions in manufacturing would become more acute the longer it takes to restore normalcy.

In separate a statement released yesterday, Apple Inc. said the company is not expecting to meet second-quarter financial guidance because production has slowed or been halted in China due to the corona virus outbreak. Other companies that have announced potential supply chain and demand issues include Boston Scientific, General Mills and Hasbro.

The expected “black swan” that is the coronavirus adds pressure to what was already a tenuous growth economic outlook resulting from the US-China trade war. Notably, Moody’s observed that weak domestic demand would make it challenging for China to meet its import commitments under Phase 1 of the US-china trade deal agreed to in January.

Moody’s noted that unlike many developing countries, U.S. growth – while decelerating – will likely be well-supported by resilient consumer spending, strong employment levels and supportive monetary conditions.

However, U.S. elections scheduled for the end of 2020 will sustain negative business investment sentiments and add significant uncertainty to the domestic economy, as U.S. trade policy debates will “likely stay elevated”.

Contact Karen Bigelow at KBigelow@buymuni.com.