China’s Coronavirus Freeze Threatens the Global Economy

YOUR BEST NEWS ! The virtual shutdown of one of the world’s biggest economies is hurting business around the world, from multinational firms to truck drivers and tour guides.

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Newsletter: Coronavirus Taking a Toll on Global Economy

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Global stocks rebounded, the yield on benchmark 10-year U.S. Treasurys briefly fell close to 1% and investors bet that central banks and governments will take steps to shield economic growth from the coronavirus. Good morning. Jeff Sparshott here with the latest on the economic fallout from the epidemic.

Best Case: Slower Growth

The global economy will slow sharply this year as governments attempt to contain the coronavirus epidemic. How much is highly uncertain. The Organization for Economic Cooperation and Development on Monday said in its “best case” scenario the global economy would grow by 2.4%, a weaker performance than the 2.9% expansion projected before the viral outbreak. The OECD said it’s possible the global output will fall during the first three months of this year, putting the economy at risk of recession. But the research body is forecasting a rebound during 2021, assuming the outbreak is contained over the coming months. That recovery wouldn’t be immediate, and some lost output would never be recovered, Paul Hannon reports.

WHAT TO WATCH TODAY

IHS Markit’s U.S. manufacturing index for February is out at 9:45 a.m. ET.

The Institute for Supply Management manufacturing index for February is expected to tick down to 50.8 from 50.9 a month earlier. (10 a.m. ET)

U.S. construction spending for January is expected to rise 1.0% from a month earlier. (10 a.m. ET)

The White House holds a briefing on the coronavirus at 5 p.m. ET.

The Reserve Bank of Australia releases a policy statement at 10:30 p.m. ET.

Follow our live coverage and analysis. As the coronavirus epidemic roils markets and upends business, follow the Journal’s updates and insights.

TOP STORIES

Factory Work

China’s coronavirus epidemic is depressing its economic outlook, with new government readings on the manufacturing and service sectors validating informal indications that the country is struggling to get back to work. An official Chinese government index that tracks sentiment at manufacturers fell to its lowest level on record in February—below even the lowest level recorded during the global financial crisis. A separate, private measure of manufacturing activity released Monday also posted a record low. Both track business sentiment among purchasing managers, but the Caixin index more closely tracks small private manufacturers while its official counterpart focuses more on large state-owned ones. The reports confirm a freeze that dates to late January, when authorities clamped down on countrywide transportation and business activity. China’s statistics bureau predicted there would be some rebound next month as more manufacturers resume activity; authorities say the worst of the health crisis may have passed, James T. Areddy reports.

The eurozone’s manufacturing outlook wasn’t as immediately bleak as China’s. Factory activity contracted—for the 13th straight month—but that was at the slowest pace in a year. “February saw encouraging signs that the eurozone’s manufacturing downturn is easing,” said IHS Markit economist Chris Williamson. “The concern is that coronavirus-related delays in shipments threaten to constrain production in the coming months, prolonging a downturn that already extends to over a year.”

Data watch: IHS Markit’s U.S. purchasing managers index is out today at 9:45 a.m. ET and the Institute for Supply Management’s U.S. gauge is out at 10 a.m. ET. As some of the most current and more forward-looking indicators, economists and investors will watch closely for any signs American factories were getting squeezed by China’s efforts to contain the coronavirus.

Call the Fed

President Trump said he is counting on the Federal Reserve to shoulder the government’s response to economic disruptions caused by the coronavirus. After the stock markets’ worst week since the financial crisis, Fed Chairman Jerome Powell signaled in a statement Friday that the central bank is prepared to cut interest rates to cushion the U.S. economy against the effects of a potential public-health emergency and widening global slowdown. “Good, it’s about time,” Mr. Trump said. He urged the Fed to reduce interest rates. Mr. Trump said talk of an economic stimulus program from the White House or Congress, such as by cutting taxes for households and individuals, is premature, Nick Timiraos reports.

In Japan, Gov. Haruhiko Kuroda said the Bank of Japan would act as needed to supply liquidity and ensure market stability.

While an interest-rate cut wouldn’t address the cause of the downturn, it could soften collateral damage to spending and confidence and speed any recovery once the epidemic is under control.

New cases reported Sunday, including the second death from the virus in the U.S., raised fears of a wider spread of the disease, prompting federal officials to ramp up efforts to fight the growing health threat. The global death toll has now surpassed 3,000.

U.S. banks are preparing by laying plans to move staffers to back-office sites, limiting contact with clients who have been abroad and curbing employee travel.

Unease over the possibility of a serious outbreak in the U.S. mounted palpably over the weekend, prompting many consumers to rush for supplies in much the same way they would if preparing for a major hurricane.

The virus has has become a top concern of chief executives world-wide.

If there is a positive impact of the coronavirus epidemic, look for it in Japan, where people are observing better hygiene and the number of influenza cases is far below a typical year. The trend hasn’t been clearly seen in Europe or the U.S., where the threat of the epidemic has begun to hit home only in recent weeks, but if people elsewhere begin to take flu-prevention measures, thousands of lives could be saved, Miho Inada and Peter Landers report.

Not About Coronavirus

Companies are stepping up efforts to keep workers from quitting. As turnover remains near historic highs, some employers are offering incentives besides outright wage increases, including clearer paths to promotion, more flexible work arrangements and benefits aimed at improving work-life balance, Kathryn Dill reports.

TWEET OF THE DAY

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