Coronavirus Clouds U.S. Outlook But Economic Impact Should be Modest: S&P

The coronavirus outbreak in China is clouding the global outlook and leading to both business caution and potential overall weakness in U.S. growth, according to S&P Global. However, given its limited exposure, the U.S. economy should experience only modest impact.

in an article titled, “Unless Coronavirus Spreads More Widely, Its Impact On The U.S. Economy Should Be Modest, S&P analysts cite less demand from the world’s second-largest economy, interruptions to travel and tourism, disruption in supply chains, and lower commodity prices as leading to the caution by businesses.

While S&P Global’s U.S. economists believe the humanitarian impact of the virus cannot be overstated, at this point they expect the effect on the U.S. economy to be modest given its limited exposure to the virus so far.

“We expect most of the drag on U.S. growth to be in the first quarter, with a smaller hit in the second quarter and a rebound in the latter half,” said Beth Ann Bovino, U.S. chief economist at S&P Global.

Bovino said that seasonally adjusted annualized first-quarter growth will now likely be closer to 1%, compared with the 2.2% S&P forecasted previously. “However, this assessment depends on the path of the virus and its longevity, which is highly uncertain,” the economist added.

Along with the potentially devastating human toll, if the virus spreads further and lasts longer, the impact on virtually every economy could be far worse. “We will be watching the numbers on the health of the U.S. economy, determining whether, and by how much, the coronavirus infects investment demand and consumer spending,” said S&P.

The revision to its first-quarter forecast was not entirely due to issues related to the coronavirus. S&P attributes 50 basis points of the first-quarter drop to the suspension of Boeing 737 MAX production and exports, with further weakness in the second. For the year, the lost productivity from Boeing in the first and second quarters will likely add further drag to its baseline growth forecast, S&P added.

Photo: WUHAN, CHINA – JANUARY 28: Hundreds of construction workers and heavy machinery build new hospitals to tackle the coronavirus on January 28, 2020 in Wuhan, China. Wuhan Huoshenshan hospital will be completed on February 2nd and put into use on February 5th, with the capacity of 1000 beds. (Photo by Getty Images)

Topics Trends USA COVID-19