China: Coronavirus will infect the Chinese economy – Nordea

Nordea’s analysts are predicting a big dive in Chinese GDP due to the effects of coronavirus. Meanwhile, the recent rate cut of the People’s Bank of China (PBoC) is supporting the yuan.

Key quotes

“The coronavirus will have a substantial negative effect on the Chinese economy. We estimate the production loss in the first quarter of 2020 to amount to 3-4% of the quarterly GDP, which would take the annual growth rate to around 3% compared to 6% in our baseline.”

“We were expecting slightly looser monetary policy already before the outbreak, but do not expect any major extra measures now, as financial leverage is still a concern.”

“The onshore yuan temporarily broke through the seven-to-the-USD mark on 3 February, following its offshore counterpart. Some signs of stabilisation and rebound are now showing, partly due to the underpinning by the central bank. The daily fixing rate has been kept on the strong side of seven to the dollar in the past few days, suggesting that the PBoC stands ready to support the currency.”

“The short-term direction of the CNY strongly depends on the further unfolding of the virus outbreak, and the measures the government takes to soften the blow.”