WASHINGTON - The United States economy braced for what could be the weakest global growth since the financial crisis, as the stock market continued to take a beating on Thursday (Feb 27) and companies warned that disrupted supply chains and dampened consumer demand could squeeze profits.
The Bank of America cut its forecast for global economic growth to 2.8 per cent this year, the weakest since the 2009 financial crisis, and said that the US would expand the least in four years.
Extended disruptions in China will hurt global supply chains and Asia will face headwinds of weak tourist flows, factors contributing to weaker global growth, said Bank of America senior global economist Aditya Bhave in a note to clients.
"The weakness in the global economy left little buffer against a major shock. Unfortunately the Covid-19 outbreak is turning out to be that shock," wrote Mr Bhave.
The Dow Jones industrial average plunged nearly 1,200 points or 4.4 per cent on Thursday, its biggest one-day fall in history.
The S&P 500 also closed 4.4 per cent lower, while the Nasdaq composite fell 4.6 per cent, capping a 10-day drop that was its steepest since 2011.
The market bloodbath came a day after former Federal Reserve chair Janet Yellen said the spread of the coronavirus could drive the US toward a recession, depending on how it affected Europe.
"We could see a significant impact on Europe, which has been weak to start with, and it's just conceivable that it could throw the United States into a recession," Ms Yellen said on Wednesday at an event in Michigan held by the Brookings Institution.
"If it doesn't hit in a substantial way in the United States, that's less likely. We had a pretty solid outlook before this happened, and there is some risk, but basically I think the US outlook looks pretty good," she added.
Meanwhile, the disruptions in global supply chains caused by workers in China continuing to stay home have rippled outwards.
Apple last week warned investors that its second quarter revenue would be lower than expected.
There would also be temporary iPhone supply shortages, it said, because manufacturing sites in China were ramping up more slowly than expected.
A wide range of American companies, especially those operating or manufacturing in China, are also reporting lower earnings as a result of the virus outbreak.
Mastercard on Thursday said that lower cross-border travel could lower its first quarter revenue by 2 to 3 percentage points.
The Walt Disney Company has said that its operating income could dip by US$175 million (S$244.68 million) this quarter if its Shanghai and Hong Kong theme parks stay closed for months.
The US travel industry is also feeling the impact of the spread of coronavirus, given the temporary ban on travellers who have recently been to China - locking out lucrative Chinese tourists and the dollars they spend - and the growing skittishness of other tourists, according to Virginia Tech professor Nancy McGehee.
"Many American travellers are cancelling international travel, not only because of fear of coronavirus, but because of the potential for either getting stuck out of the country or being a burden on the systems of other countries," said the hospitality and tourism management department head.
The average Chinese visitor spent roughly US$6,500 per visit in 2018, according to the US Travel Association.
The coronavirus-caused drop in Chinese visitor spending is estimated to cost the tourism industry up to US$10 billion over the next four years, she noted, citing a report from consulting firm Tourism Economics out last week.
"This is not just a blip on the radar but a pretty deep hit from which it will take a while to recover," she said.
