Facts and fear

Posted by: Paul Donovan

31 Jan 2020
  • The World Health Organization has declared the coronavirus an international emergency. Its director-general has urged people to focus on facts, not fear. Economists applaud this. It is fear that matters most to the economy. Fear changes consumers' economic behavior and policy makers' responses. Bloomberg reports that provinces accounting for over two thirds of Chinese GDP will keep businesses closed next week.
  • There will be lots of attention paid to the impact on global GDP. It is worth remembering that global GDP is a meaningless number. What is important is the way China's loss of economic activity directly affects other economies' economic activity. For example, China's investment slowdown last year hurt Europe. A slowdown in Chinese spending on services is likely to be less damaging to Europe.
  • France and Spain offer fourth-quarter GDP data. France's data is affected by strike action, although flexible working practices have perhaps reduced the damage caused by a public transport strike. Spain should see a modest increase in growth.
  • US personal income and consumption data is due. Personal income is becoming more important, as structural changes mean that measures like average hourly earnings capture less and less of what is happening to Americans' incomes.

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