The coronavirus outbreak that originated in China and has grown rapidly will likely weigh on the global economy and could have ripple effects in the Nordics.
That’s according to a new report from Nordea Research, which estimates that the outbreak will hurt China’s GDP by around 3% points and shave 1% point off global growth in the first quarter of 2020.
The outbreak has already affected major parts of China, hitting the transport and services sectors especially hard, with restaurants and cultural attractions now deserted. Given China’s role as an economic superpower and a critical player in global value chains, the effects will be felt around the world.
However, assuming the outbreak is contained relatively quickly, activity should pick up over the rest of the year and help offset the Q1 slowdown, according to the new report. Nordea thus expects growth in China for 2020 to end up at around 5%, compared to the baseline scenario of 5.9%. And world growth would only be 0.15% point lower than the baseline of 2.8% in 2020. See Nordea’s latest Economic Outlook, released on 29 January.
“Unless the outbreak spreads widely and turns into a real pandemic, with production also being shut down in other countries, there is no indication that it will be able to take the world economy decisively off course,” says Nordea Group Chief Economist Helge J. Pedersen.
Impact on the Nordics
The Nordic countries, small open economies dependent on foreign trade, will likely feel the pain if world growth slows. There are also some key developments to watch when it comes to the outbreak’s impact on the Nordics.
Norway is the most directly affected by coronavirus due to its oil-dependent economy. Oil prices have fallen, with demand down due to travel restrictions to and from China. On the other hand, the NOK has weakened since the outbreak of the virus, partly due to lower oil prices but also risk-off sentiment in financial markets.
“The more the currency depreciates, the more oil prices must fall to make Norges Bank actually cut interest rates,” says Kjetil Olsen, Nordea chief economist in Norway.
Nordic manufacturers could be hit by global supply chain problems, a risk that increases day by day as the outbreak continues. And a more direct impact is via financial markets.
Find out more about the impact in the Nordics in the full research report.
(Front page photo by Kevin Frayer/Getty Images)
The information provided within this website is intended for background information only. The views and other information provided herein are the current views of Nordea Bank Abp as of the date of publication and are subject to change without notice. The information provided within this website is not an exhaustive description of the described product or the risks related to it, and it should not be relied on as such, nor is it a substitute for the judgement of the recipient.
The information provided within this website is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sale of any financial instrument. The information provided within this website has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment or credit decision. It is important to note that past performance is not indicative of future results.
Nordea Bank Abp is not and does not purport to be an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction.
The information provided within this website may not be reproduced, distributed or published for any purpose without the prior written consent from Nordea Bank Abp.