Coronavirus a downside risk to already weak growth

The euro-zone economy ended 2019 on a weak note and the outlook for early 2020 remains gloomy. Euro-zone GDP slowed from 0.3% q/q in Q3 to 0.1% q/q in Q4, with contractions in French and Italian GDP. Although the euro-zone surveys for January point to a small improvement in activity and confidence, they are hardly consistent with a strong rebound in activity at the start of the year. And the coronavirus poses a new downside risk. For now, our best guess is that the impact on euro-zone GDP will be negligible. After all, exports to China are fairly small as a share of the total. That said, the economic impact could be magnified through manufacturing supply chains; European automakers have already warned of potential shortages of Chinese parts. Even so, the euro-zone economies most affected are quite small while the biggest economies appear more sheltered.