Coronavirus undermines health of U.S. economy: Goldman Sachs
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Rep. Michael Burgess, R-Texas, argues the World Health Organization did the right thing in declaring coronavirus a health emergency and that its full impact at ground zero, the Chinese city of Wuhan, is unknown.
The coronavirus outbreak that wiped out January's gains on the Dow Jones Industrial Average will take a temporary toll on the U.S. economy, according to Goldman Sachs.
The bank’s chief economist says the virus, which has sickened 9,692 people and killed 213, will be a 0.4 percentage point drag on the U.S. economy in the first quarter, before likely snapping back in the following three months.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| SP500 | S&P 500 | 5881.06 | -68.11 | -1.14% |
| I:DJI | DOW JONES AVERAGES | 43460.12 | -290.74 | -0.66% |
| I:COMP | NASDAQ COMPOSITE INDEX | 18757.53403 | -350.12 | -1.83% |
That leaves only a small drag on full-year growth in the U.S. of about a half percentage point, due to a drop in Chinese tourism and a slowdown in exports to the country, chief economist Jan Hatzius wrote in a note to clients on Thursday. He said the drag will mostly be due to a drop in Chinese tourism and a slowdown in exports to China.
Hatzius says the 2003 SARS outbreak caused Chinese tourism to the U.S. to fall by about 50 percent, and U.S. companies currently offer personal, business and educational travel services to Chinese.
On Thursday, the World Health Organization called the outbreak a “global health emergency,” and American Airlines, Delta Air Lines and United Airlines have suspended or reduced flights to mainland China through March. The U.S. State Department raised its travel advisory for the nation to “Level 4: Do Not Travel,” the most severe rank.
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During a press conference on Wednesday, Federal Reserve Chairman Jerome Powell said “there will clearly be implications” for China’s economy and that the central bank was on the lookout for spillover effects in the U.S. and globally. Its monetary policy committee held the benchmark fed funds rate steady in a range of 1.5 percent to 1.75 percent at the meeting after three cuts last year.
Hatzius says it’s unlikely the Fed will “significantly alter” its outlook because of the virus. The outbreak nonetheless comes at an inopportune time for the U.S. economy, which is already facing headwinds from Boeing's decision to halt production of its best-selling 737 Max. Economists have said the stoppage will erase 0.5 percentage points from first-quarter growth.
Combined, the two are expected to wipe out close to 1 percentage point of growth from a U.S. economy that expanded at a 2.1 percent pace in the fourth quarter.
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Hatzius warns that the risks are skewed toward an even bigger hit as worsening coronavirus developments might cause “increased domestic risk-aversion behavior or a sustained tightening in financial conditions.”