Coronavirus could push UK to brink of recession, says Goldman Sachs
The coronavirus outbreak could push the UK to the brink of recession in the coming months, Goldman Sachs has warned.
The disease’s spread will force the chancellor, Rishi Sunak, to refocus next week’s budget on the government’s short-term response, rather than a broad-based expansion of spending, the US investment bank’s economists said.
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The UK is on track for a second consecutive quarter of zero growth from January to March and output could shrink by -0.2% in the second quarter, with coronavirus disruption responsible, according to a Goldman forecast. If the second-quarter forecast is correct, the UK will be on the cusp of an official downturn because the technical definition of recession is two successive quarters of negative growth.
“The UK is highly exposed to global activity (which we expect to contract in the first quarter), tourism exports are significant and the virus is spreading steadily within the UK,” Goldman’s note said.
Meanwhile, analysts at Deutsche Bank have halved their UK growth forecast for this year to only 0.5%, a post-financial crisis low, because of the outbreak and said the Bank of England could respond with two interest rate cuts of 0.25 percentage points by May, from their current level of 0.75%. Goldman believes the new Bank of England governor, Andrew Bailey, will announce an emergency cut of 0.5 percentage points on 26 March, after his first monetary policy committee meeting.
The reduced forecasts come as a slew of companies in the UK and Europe have warned that reduced activity will hurt their businesses. On Thursday the regional airline Flybe became one of the most prominent corporate victims of the virus yet, as the troubled carrier collapsed into administration. Its failure puts 2,000 jobs at risk, with unions warning of another 1,200 in the supply chain.
What is the coronavirus and should we be worried?
It is caused by a member of the coronavirus family that has never been encountered before. Like other coronaviruses, it has come from animals. Many of those initially infected either worked or frequently shopped in the Huanan seafood wholesale market in the centre of the Chinese city.
Severe acute respiratory syndrome (Sars) and Middle Eastern respiratory syndrome (Mers) are both caused by coronaviruses that came from animals. In 2002, Sars spread virtually unchecked to 37 countries, causing global panic, infecting more than 8,000 people and killing more than 750. Mers appears to be less easily passed from human to human, but has greater lethality, killing 35% of about 2,500 people who have been infected.
The virus can cause pneumonia. Those who have fallen ill are reported to suffer coughs, fever and breathing difficulties. In severe cases there can be organ failure. As this is viral pneumonia, antibiotics are of no use. The antiviral drugs we have against flu will not work. Recovery depends on the strength of the immune system. Many of those who have died were already in poor health.
UK Chief Medical Officers are advising anyone who has travelled to the UK from mainland China, Thailand, Japan, Republic of Korea, Hong Kong, Taiwan, Singapore, Malaysia or Macau in the last 14 days and who is experiencing a cough or fever or shortness of breath to stay indoors and call NHS 111, even if symptoms are mild.
China’s national health commission has confirmed human-to-human transmission, and there have been such transmissions elsewhere.
As of 4 March, the global death toll was 3,190, while more than 93,000 people have been infected in more than 80 countries.
The death toll has passed 3,000 in China, where there have been over 80,000 cases. South Korea, the nation worst hit by the outbreak outside China, has had 5,328 cases. More than 44,000 people in China have recovered from Covid-19.
There have been 87 recorded cases and no fatalities to date in the UK. There are 53 confirmed cases in Australia, with two deaths.
We don’t yet know how dangerous the new coronavirus is, and we won’t know until more data comes in. The mortality rate is around 2% at the centre of the outbreak, Hubei province, and less than that elsewhere. For comparison, seasonal flu typically has a mortality rate below 1% and is thought to cause about 400,000 deaths each year globally. Sars had a death rate of more than 10%.
Another key unknown is how contagious the coronavirus is. A crucial difference is that unlike flu, there is no vaccine for the new coronavirus, which means it is more difficult for vulnerable members of the population – elderly people or those with existing respiratory or immune problems – to protect themselves. Hand-washing and avoiding other people if you feel unwell are important. One sensible step is to get the flu vaccine, which will reduce the burden on health services if the outbreak turns into a wider epidemic.
A pandemic, in WHO terms, is “the worldwide spread of a disease”. Coronavirus cases have been confirmed outside China, but by no means in all 195 countries on the WHO’s list. It is also not spreading within those countries at the moment, except in a very few cases. By far the majority of cases are travellers who picked up the virus in China.
No. The spread of the virus outside China is worrying but not an unexpected development. The WHO has declared the outbreak to be a public health emergency of international concern. The key issues are how transmissible this new coronavirus is between people, and what proportion become severely ill and end up in hospital. Often viruses that spread easily tend to have a milder impact. Generally, the coronavirus appears to be hitting older people hardest, with few cases in children.
Sarah Boseley, Hannah Devlin and Martin Belam
The Deutsche economists Sanjay Raja and Oliver Harvey said weaker global growth, supply chain disruptions and subdued household demand would weigh on UK growth this year.
On Thursday, Saga, the UK insurance and travel firm for the over-50s, said it had seen an increase in holiday cancellations and a sharp drop in bookings in the wake of the coronavirus outbreak. Passenger bookings at its tour operations had been down 20% from a year earlier but have slumped even more in recent weeks.
Aviva, one of Britain’s biggest insurers, said it had received 500 valid travel claims and had paid out £500,000 for trips cancelled because of the outbreak. Its chief executive, Maurice Tulloch, said the virus “presents a new uncertainty in 2020”, as the company reported a record operating profit of £3.2bn for 2019.
Hugo Boss also warned on Thursday that the coronavirus outbreak will hit its revenues and profits this year. Asia is one of its most important markets and made up 15% of sales last year. Revenues there have slumped as more than half of its 150 shops in China, Hong Kong and Macau have been shut since the end of January and shopper numbers are down at the outlets that are open.
The German fashion house expects things to return to normal this summer but is still predicting a major hit to its 2020 results. Asia-Pacific sales are set to record a single-digit-percentage drop, compared with 5% growth last year, including double-digit growth in China.
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