Last week, markets closed out on an anxious note. Nevertheless, it was not difficult to see why. Coronavirus continues to spread. Thus, there are signs some of the world’s top economies might slide into recession because the outbreak compounds pre-existing weaknesses.
For example, let’s check Japan. Japan is the third-largest economy, which shrank 1.6% in 2019’s fourth quarter. It was because the country absorbed the effects of a sales tax hike and a powerful typhoon. Compared to the previous quarters since 2014, it was the most significant contraction.
Germany is the biggest economy in Europe. It is the perfect ground to a halt right before the coronavirus outbreak set in.
It was dragged down by the struggling factories of the country. For February, the closely watched ZEW indicator of economic sentiment in Germany decreased. It reflected fears the virus might hit world trade.
Ethan Harris is a Bank of America economist. He is highlighting the number of smaller economies that are hurt too. Hong Kong suffers from a recession, and Singapore might have a similar fate. Indonesia’s fourth-quarter GDP data hit a three-year low. He said on Friday to clients Malaysia had its worst reading of the decade.
Moreover, in 2019, engines of growth like India and China slowed. This week will come out with the fourth-quarter GDP data.
There is a question if concerns about the global economy will withstand a shock brought by a coronavirus. Harris said that the weak quarter was a result of lingering damage from the trade war between the United States and China. The coronavirus will most probably make matters worse.
Economies of the World
He added global equities have rebounded as China and the United States have converged to a ceasefire. Nevertheless, companies remain deeply uncertain with global supply chains.
Moreover, the United States might not be as strongly positioned as previously perceived. IHS Markit said on Friday, in February, the United States services sector contracted. It contracted with the reading hitting a 76-month low. It’s the first-time sector contracted in four years.
On Monday, the United States President Donald Trump is scheduled to arrive in India. He has a state visit with Narendra Modi, Indian Prime Minister.
The administration of Trump, last year, ended special trade treatment for India. They removed a status that exempted billions of dollars of the company’s products from United States tariffs. In response, India increased tariffs on United States exports.
After other trade conflicts occupied the United States, the country nailed down a truce with China. Nevertheless, after phase one deals with China, the spat with India might get new attention. That might also mean an agreement to take a step back. Or it might mean a breakdown in communication, which might cause more escalation.
Larry Kudlow is Trump’s top economic adviser. On Friday, he told reporters not to anticipate a significant trade component to the visit. He added that he thinks we might see Trump’s public willingness to negotiate with India. Moreover, Modi and Trump are friends. Let’s see how the meeting finishes.
