One of the major concerns about the impact of coronavirus is how it will hurt the various major economies of the world. The early impacts are looking as grim as you’d expect. We can’t predict how many people Covid-19 will kill, but the economic impact is already going to be ugly.
First, let’s talk about the broad indicators on the US economy. Current predictions are for a flat Q1 2020 and a 5 – 6.5 percent decline in Q2. For reference, the entire US economy fell 4.2 percent from mid-2007 to 2009, so we’re talking about a larger decline in one quarter than we previously saw over two years. The good news, according to Goldman, is that everything should bounce back, with full stock market recovery by the end of the year. The bank warns, however, that it is far less certain of these numbers than it would typically be.
Image by South Central Morning Post
Meanwhile, the outlook for the broader Chinese economy is ugly. The South China Morning Post reports that industrial production fell 13.5 percent over January and February combined, retail sales fell 20.5 percent, and fixed asset investment fell 24.5 percent. Analyst-predicted values for those drops? 3.0 percent, 4.0 percent, and 2 percent, respectively. Manufacturing output fell 15.7 percent in January and February, while investment in the manufacturing sector fell 31.5 percent.
Not great.
Meanwhile, in the Tech Sector
Both of the following data points come from DigiTimes, which reports that laptop sales among the five largest vendors fell 40 percent in February. Only Dell and Lenovo managed to ship more than one million notebooks in the month.
Meanwhile, tech shipments in the motherboard and GPU
add-on markets are no better. Sales of these components fell 30 – 50 percent in China last month and reportedly are not expected to recover until July. Demand for motherboards and chips reportedly came to a standstill.
The idea of flattening the pandemic curve has applications in industry as well, from a different perspective. For global manufacturers, it’s better to be able to maintain lower-than-expected sales over a period of time as opposed to facing the full impact of a global shutdown all at once. China coming back online as other countries drop off should be at least a little helpful.
If motherboards and graphics sales are down by 30-50 percent, we’re going to see CPUs hit as well. It’s not clear by how much, but clearly a number of tech companies are going to miss earnings in both Q1 and Q2. We’re still about four weeks out from hearing about Q1 damage, but it’s not going to be good — and Q2, by all accounts, is expected to be worse.
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