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Every Chain Has Got a Weak Link
The world economy is shuddering as coronavirus threatens global supply chains. The last time a coronavirus outbreak hit China in 2003, the global economy emerged relatively unscathed. Now, nearly two decades later, the growth-damping effects of a similar pathogen threaten to ripple around a world transformed by China’s boom.
Chinese consumption and production power growth from Asia to North America, Europe and beyond. Manufacturers world-wide are tethered to China by the tentacles of a supply chain that relies on the country’s factories for many intermediate and finished goods. With fears of contagion keeping Chinese workers home, production is getting pinched. A month after the epidemic forced factories into limbo past their usual Lunar New Year break—a handful are reopening—officials and economists are warning that an extended Chinese shutdown could cripple global manufacturing and cost the world up to $1 trillion in lost output, Chuin-Wei Yap and Jon Emont report.
WHAT TO WATCH TODAY
The Dallas Fed’s manufacturing survey for February is out at 10:30 a.m. ET.
Cleveland Fed President Loretta Mester speaks on the economic outlook and monetary policy at 3 p.m. ET.
President Trump is in India. Follow our coverage here.
TOP STORIES
Risk to Global Growth
New cases of coronavirus flared outside China, adding to global health officials’ worries about the spread of the disease in dangerous new pockets of infection. The emergence of clusters of infection in new countries including South Korea, Italy and Iran show that it is unclear how the virus is transmitted, Newley Purnell reports.
The rapid spread of coronavirus in South Korea is bleak news for global manufacturers. China-style industrial shutdowns look increasingly likely in a country that punches above its weigh in global supply chains. South Korea’s exports are equivalent to 44% of its GDP, second only to Germany among major advanced economies. But even that understates its importance: Its overwhelming specialty is intermediate goods required by other manufacturers. Such goods make up around 55% of Germany’s exports, 62% of China’s—but 90% of South Korea’s. The country has a commanding position in electronics, dominating some categories of semiconductors and displays. So any industrial shutdowns designed to slow the spread of coronavirus will be felt immediately elsewhere, Mike Bird writes.
The Group of 20 major economies warned Sunday the fast-spreading coronavirus posed a serious risk to global growth. Finance ministers and central bankers discussed the virus, alongside trade and geopolitical tensions, at a weekend meeting in Riyadh, Saudi Arabia. The officials didn’t outline specific joint measures to tackle the outbreak of Covid-19 in a post-meeting communiqué, but said the virus was central to discussions and agreed to monitor its spread, Rory Jones reports.
The International Monetary Fund cut China’s annual growth forecast by 0.4 percentage points to 5.6%, compared to the fund’s pre-virus prediction in January. The slower growth would shave 0.1 percentage point off of global output.
Road Trip!
Falling fuel costs are buoying U.S. consumers. Some of the lowest prices for crude oil and natural gas in years could help cushion the U.S. from the economic fallout related to the coronavirus. Analysts say a prolonged period of low fuel costs would support consumers after their spending slowed to a 1.8% annual growth rate in the fourth quarter of 2019 from a 3.2% pace the prior quarter. Some economists are hoping that a reacceleration in consumer spending can keep growth stable despite a drop in global demand for goods and services early in the year, Amrith Ramkumar reports.
Counterpoint: The recent rise of the U.S. to become the world’s largest producer of oil and natural gas muddies the economic impact of cheaper energy. Private investment in energy-related structures, for example, has fallen for six straight quarters, creating a drag on overall economic growth.
Coming Home
Alongside consumers, housing has been a key ingredient of recent economic growth. But U.S. home sales sputtered in January, the latest sign that some of the lowest interest rates in half a century are failing to offset high prices and limited inventory. Existing-home sales fell 1.3% from December, the latest in an up-and-down series of monthly readings. Now, some worry that sluggish home-sales activity and fewer people moving could become more of a drag on economic growth, Konrad Putzier and Will Parker report.
On the bright side: From a year earlier, sales were up 9.6%, suggesting the market has regained some of its footing after a rocky stretch that began in 2018 and lasted well into 2019. And recently, some signs have emerged that more inventory could be on the way. Residential building permits, often a bellwether for future home construction, in January climbed to the highest level in 13 years.
Silently and Very Fast
Artificial intelligence is expected to alter how Americans work on a scale similar to that of robotics and desktop computers—but this time, the employees who will be most affected by the changes are likely to be managers and professionals. The most vulnerable occupations include marketing specialists, financial advisers and computer programmers—jobs that tend to pay high wages and skew toward male, white and Asian workers, Eric Morath reports.
WHAT ELSE WE’RE READING
Coronavirus is speeding up the decoupling of global economies. “An increased risk of violence in Taiwan, the inability of Europe to defend its own liberal democratic values, and a world in which smart devices can no longer speak to each other across borders are distinct possibilities. And all of these things could fundamentally reshape the global economy and geopolitics,” Rana Foroohar writes in the Financial Times.
Race affects police use of lethal force. “While white and black officers use gun force at similar rates in white and racially mixed neighborhoods, white officers are five times as likely to use gun force in predominantly black neighborhoods. Similarly, white officers increase use of any force much more than minority officers when dispatched to more minority neighborhoods. Consequently, difference-in-differences estimates from individual officer fixed effect models indicate black…civilians are 30-60% more likely to experience any use of force, and five times as likely to experience gun use of force, compared to if white officers scaled up force similarly to minority officers,” Mark Hoekstra and CarlyWill Sloan write in a National Bureau of Economic Research working paper.
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