(Yicai Global) Feb. 26 -- S&P Global Ratings Chief Economist Paul Gruenwald expects a V-shaped economic recovery in China, he said in a recent interview with Yicai Global in New York, adding he forecasts the impact of the novel coronavirus on its economy will mainly be limited to the first quarter.
A consensus prevails at S&P that if the spread or the contagion comes under control at some point in March the global economy will recover, he said.
The epidemic will shave one percentage point off China's first-quarter economic growth, Gruenwald also anticipates. S&P lowered its growth forecast for China this year by 0.7 percentage points to 5 percent because of the Covid-19 outbreak, he noted.
As for the global economy, the pestilence will affect supply chains and tourism, mostly in Korea and Taiwan, which are major links.
These two economies took a pretty big hit of about half a percent of gross domestic product reduction and growth. Japan suffered a little bit less because it is more domestically focused. Most of China's neighboring countries have taken a dent to growth of between one-quarter to one-half of a percent of GDP.
The negative impact on economic growth may be between 0.1 and 0.2 percentage points for the US and EU, S&P predicts, he said, adding, S&P revised its global growth forecast downward by 0.3 percentage points.
Gruenwald sees little likelihood of an interest rate cut by the US Federal Reserve at present.
"The Fed has a dual mandate, this is price stability and full employment. If we get a downside shock to either employment or inflation, the Fed might see it necessary to act. But again, if they take action, it's going to be two or four quarters until the full effect is felt. And if we get a V-shaped recovery, you don't want the stimulus coming through when the economy's already recovered," he said.
Editor: Ben Armour