Virus outbreak sickens markets, infects outlook

Traders seek out healthier financial assets seen as safer

FRANKFURT, Germany — The widening coronavirus outbreak threatens to seriously disrupt the global economy, just as it was steadying itself against headwinds from the U.S.-China trade dispute.

Amid concerns that global output could decline for the first time since the global financial crisis a little more than a decade ago, stock markets sank Monday. In one sign of how sentiment has been negatively hit, gold spiked 1.8% to $1,688 an ounce during trading, its highest level in seven years, as traders sought out financial assets some consider safer in times of stress.

On Wall Street, the Dow Jones closed down more than a thousand points in Monday trading, while in Europe, the Pan-European Stoxx 600 slid 3.79% after an eruption of cases in Italy. Cases were also reported in new countries in the Middle East.

“Compounded with the already dramatic interruptions to global supply chains in China, traders fear that a rapid spread of the disease to other major economies could be enough to temporarily tip global economic growth into contraction in the first half of the year,” said Matt Weller, global head of market research at GAIN Capital in London.

China, the epicenter of the outbreak, faces the most acute near-term difficulties as factories sit idle and people remain homebound.

But the ripple effects are being felt around the world, as China is a major importer of goods as well as a source of parts through intricate supply chains. Growth estimates for China are being cut.

Concerns are growing in the 19-country eurozone, whose three biggest economies — Germany, France and Italy — are stalling. Concerns over the knock-on effects on Germany, Europe’s export powerhouse, are acute. Germany’s main DAX stock market closed a whopping 4% lower Monday.

“Given the latest developments, one has inevitably to talk about downside risks for German exporters,” said Andreas Rees, chief German economist at UniCredit.

Rees cited figures showing car sales in China fell 92% in the first two weeks of February, and pointed out that of the 21 million cars sold in China last year, about 1 in 5 was made either in Germany or through German investment in China. Most Chinese auto showrooms are closed.

Italy’s FTSE MIB slumped 5.4% as Italian civil protection officials said at least 222 people had tested positive for the virus in the country and that six people had died.

Jack Allen-Reynolds, senior Europe economist at Capital Economics, said the virus “makes another recession in Italy more likely than not.”

Europeans had been hoping for a modest upturn this year after major economies staggered through a rough patch at the end of the year. Germany showed zero growth in the fourth quarter, while the No. 2 and No. 3 economies, France and Italy, shrank slightly. Two straight quarters of falling growth is one definition of a recession.

The global economy was just stabilizing after wobbles caused by the trade war between the U.S. and China.