Coronavirus impact on the financial world
Global financial institutions are trying to gauge and react to the economic impact of the virus.
The coronavirus outbreak is at the top of every major newspaper’s homepage throughout the globe. As the number of confirmed cases continues to mount both in and outside of China, people are rightly becoming concerned about a global pandemic. With China home to factories that are key cogs in global supply chains, financial institutions are wondering what type of impact the coronavirus will have on the global economy.
Facts and narratives surrounding the virus are in a constant state of flux, resulting in a murky picture on the expected economic impact. Companies and factories were supposed to return to work this week after an extended new year holiday, but it was clear from around the country that cities were not operating anywhere close to their full capacity. With the Chinese government remaining tight-lipped about figures, it has left analysts and investors attempting to use alternative methods in order to discern what is really happening on the ground. One Morgan Stanley analyst is attempting to judge the amount of air pollution from their skyscraper in Hong Kong to determine if the city is at full production. Another suggestion was to use TomTom data to gauge traffic.
Many factories remain shut down in fear of contributing to the spread of the virus. This goes against the wishes of the government, as Reuters reported on Tuesday that President Xi Jingping warned his government officials last week that the steps they have taken, such as closing factories, schools, and roads, were too restrictive and creating counterproductive fear among the public. The government is urging companies and factories to resume work, especially in the key areas of food production and pharmaceuticals.
Estimates from around the region don’t paint a rosy picture. First quarter GDP growth in China will very likely end up a couple percentage points below the anticipated number. A Chinese government think tank expects China’s full-year economic growth rate to drop by fully 1 percentage point in 2020 due to the virus. Analysts from Efma member Allianz Group have revised their global growth forecast for 2020 down a percentage point as well to 2.3%. Hong Kong and Singapore are bracing for steep tourism hits, expecting arrivals for the year falling by up to 30%.
However, in Hong Kong, Efma members Standard Chartered and HSBC are demonstrating a necessary understanding of the unfortunate circumstances. Both banks have provided temporary liquidity relief to borrowers after the Hong Kong Monetary Authority asked lenders to “adopt a sympathetic stance” towards customers during the outbreak. Standard Chartered mortgage borrowers and small businesses will be allowed to pay only interest on their loans for up to a year. Furthermore, late fees will be waived on credit cards through May. It is measures such as these that are critical to companies and individuals in the region during a period of major uncertainty.
While market indicators in Asia, America, and Europe remain stable, banks and financial institutions will need to continue being proactive in adjusting to the extraordinary circumstances in the region. The unfortunate reality is that it is difficult to figure out exactly how bad things really are. With the scale this outbreak has reached, the situation is now largely unprecedented. The forecasts for the moment are far from being catastrophic, but it’s clear it will take some time before the APAC region is back to its full operating capacity.