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Eurozone: Latest coronavirus outbreak in Italy is an additional risk for the economy – Wells Fargo

According to analysts at Wells Fargo, the latest coronavirus outbreak in Italy posses an additional risk for the Eurozone economy. They see that Eurozone Q1 real GDP growth
could be closer to 0.1% quarter-over-quarter.

Key Quotes: 

“The Eurozone economy was already at risk amid the coronavirus due to its trade exposure to China, but the latest outbreak in Italy only adds to those risks. Fortunately, sentiment data were relatively encouraging in the beginning of Q1 and prior to the Italian outbreak, suggesting all is not lost for Eurozone Q1 GDP.”

“The effects of coronavirus on the Eurozone economy will largely depend on what happens next. Most of the rest of the region, including France and Germany, which combined account for around half of Eurozone GDP, have not seen any surge in new cases of the virus. It is hard to get an exact estimate due to several methodology changes, but data on new cases from Hubei—the source of the outbreak—suggest it took authorities around two weeks to get the growth in new cases under control. Assuming a similar timeframe in Italy, and adding a two-week buffer to resume normal economic activity, we think it is reasonable to say that the disruption could largely pass by the end of Q1.”

“We have 0.2% quarter-over-quarter real GDP growth penciled in for the Eurozone in Q1, which already incorporates the disruptions to Chinese and global demand prior to the recent spike in Italian cases. Recent developments in Italy suggest that Eurozone Q1 real GDP growth could be closer to 0.1% quarter-over-quarter, although we are not at this point making any changes to our forecast until we see how the situation evolves from here. If there is contagion to other core countries such as Germany and/or France, then the risk of an outright decline in Eurozone GDP in Q1 could become a more realistic prospect.”
 

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