Will the coronavirus outbreak knock global growth?

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The Wuhan coronavirus outbreak spooked financial markets last week. Now investors are on high alert for economic repercussions.

The virus appeared in the Chinese city of Wuhan last month and has since infected hundreds of people around the world, including three confirmed cases in the United States. The death toll in China has risen to more than 50.

“The rapid spread of the virus means there is no longer any doubt that it will disrupt the economy this quarter,” Julian Evans-Pritchard, senior China economist at Capital Economics, said in a recent note to clients.

The outbreak is bringing back memories of SARS, a highly contagious virus that caused a global panic in 2003. The virus, which originated in China, infected more than 8,000 people and killed 774.

China’s GDP was choppy from quarter to quarter that year, as the country struggled with a steep drop off in travel and a slower expansion of retail sales in the wake of the outbreak. Still, the country’s economy grew by more than 10% in 2003, according to the World Bank, slightly faster than the previous year.

But investors and economists are right to be concerned about the coronavirus.

“Concerns are growing that the travel bans in place will start to have a major impact on the economy with some calling for a 1 percentage point hit or greater with Chinese GDP” in the first quarter of 2020, wrote Edward Moya, senior market analyst at Oanda.

The outbreak couldn’t have come at a worse time for the world’s second largest economy, which is still grappling with the impact from the US-China trade war. The closure of businesses like Shanghai’s Disney park could hit consumer spending at a delicate time. 

The outbreak could also harm other parts of the global economy.

European markets climbed higher on Friday following better-than-expected economic data from Germany. But if China’s economy grows at a slower pace than expected, European countries that rely on exports could feel some pain.

The cost of Boeing’s 737 Max crisis

Boeing is slated to report earnings for the final three months of 2019 on Wednesday. The big question for investors: As the 737 Max crisis drags on, what’s the growing cost?

The aircraft manufacturer is in for an ugly comparison to the final quarter of 2018. While one 737 Max crashed in October of that year, the aircraft wasn’t grounded until a second plane went down in March 2019.

Boeing announced last week that it doesn’t expect to get approval for the jet to fly again until summer 2020 at the earliest, although the US Federal Aviation Administration said Friday that approval could come sooner.

In the meantime, investors will want to know how business is faring. Boeing was profitable in the third quarter of 2019, but revenue tumbled 21% since it couldn’t deliver 737 Max planes.

Costs could continue to rise as the aircraft stays on the ground. Boeing already registered a $5 billion charge from compensation it agreed to pay airline for customers, and Southwest Airlines said last week that it will press Boeing for additional payment.

Up next

Monday: Sprint and Whirlpool earnings; New US home sales

Tuesday: US consumer confidence; 3M, Apple, Harley-Davidson, Lockheed Martin, Pfizer, SAP, Xerox, eBay and Starbucks earnings

Wednesday: Federal Reserve interest rate decision; Japan and Germany consumer confidence; AT&T, Boeing, GE, Mastercard, McDonald’s, Facebook, Microsoft, PayPal and Tesla earnings

Thursday: US fourth quarter GDP; Bank of England interest rate decision; Amazon, Blackstone, Coca-Cola, Hershey Foods, Northrop Grumman, Raytheon, Royal Dutch Shell, UPS, Verizon, Levi Strauss, US Steel and Visa earnings

Friday: Europe fourth quarter GDP; US personal income and spending; Caterpillar, Chevron, Colgate-Palmolive and ExxonMobil earnings