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Eurozone investor sentiment hit by virus spread

Martin Arnold reports from Frankfurt:

Sentiment among eurozone investors worsened in February for the first time in four months as concerns about the outbreak of coronavirus in China weighed on the economic outlook, according to a closely-watched survey.

However, the fall in the German-based Sentix survey of investors from 7.6 in January to 5.2 in February was less than expected by most economists surveyed by Reuters.

A positive score indicates a larger proportion of institutional and private investors reported a good economic situation than those who said it was bad.

“The outbreak of the coronavirus and the subsequent drastic measures taken by the Chinese government cast a shadow over the economic outlook,” said Manfred Hübner, the head of Sentix. “Fortunately, so far the effect is limited.”

Economists worry that the disruption caused by the coronavirus will hit not only the Chinese economy, but also global supply chains. Executives at carmakers and motor parts suppliers have already warned that plants in Europe and the US are only weeks away from being forced to close because of the coronavirus disruption.

“Together with recent weak data from the manufacturing sector, the slide in confidence confirms that the eurozone’s economic outlook is set to remain subdued in the short-term, and vulnerable to further fallout from the outbreak,” said Maddalena Martini, eurozone economist at Oxford Economics.

Neil Shearing, chief economist at Capital Economics, cut his forecast for first-quarter Chinese growth from 5 per cent to 3 per cent. “The inherent uncertainty surrounding the spread of the virus makes it virtually impossible to quantify the wider impact on the world economy,” said Mr Shearing.

“But China’s role at the centre of global supply chains increases the likelihood that the disruption spreads to other countries,” he said. “Economies in Emerging Asia look most vulnerable, as do firms operating in both the tech and electronics sectors.”

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