The world consumption of oil is set for its first fall in a decade, as global investors continue to focus on the coronavirus outbreak and whether or not it will derail the world economy this year. European shares inched ahead, as long-haul airlines including BA-owner IAG, Lufthansa, and AirFrance KML, which had been hit hard at the start of the outbreak, continued to claw back losses.
However, the price of crude oil, which has slumped on fears about the outlook for world growth this year, traded little changed at $57.44 a barrel.
Goldman Sachs cut its first-quarter price forecast for Brent crude and a US benchmark by $10 a barrel, citing a sharp hit to demand following the viral outbreak.
The International Energy Agency said global oil consumption will drop this quarter for the first time in over a decade.
“The numbers are stark,” said Neil Shearing, group chief economist at Capital Economics in London in a major research note on the coronavirus.
“Passenger traffic in China is down by around 60% compared to the same period around the Lunar New Year holiday last year.
“Property sales have collapsed, and energy consumption has failed to rebound following its usual drop over the holiday period”, he said.
Companies across the globe, including exporters and importers in Ireland, rely on China supply chains for manufacturing and to complete orders, while there are other fallouts for Ireland should the German manufacturers and in other parts of the eurozone be hit by the China crisis.
Mr Shearing said: “It’s difficult to judge how the economic effects of the virus will play out over the next 10 days, let alone the next 10 years”.
But there were also signs that neighbouring economies to China were being hit through their supply chains.
Figures show imports to Korea from China in the first 10 days of February fell by around 50% — a slump that is bigger than the drop at the height of the global financial crisis in 2008.
“The spread of the virus has created a cottage industry for economic forecasters ...The more important question, however, is how quickly any lost output can be made up,” Mr Shearing said in the research note.
He said that China’s economic output would most likely rebound if workplaces are re-opened quickly.
Longer-term effects could still have significant repercussions, however.
“One plausible consequence is that it could accelerate the process of deglobalisation that is already spreading through the world economy, and which we have previously warned about,” he said.
Mr Shearing said that the jury was still out on the view that the recent coronavirus outbreak will lead to a loosening of political control by the Communist Party in China.
“Beijing may be able to make the case that the outbreak was only contained thanks to a strong centre. And if that happens, it could entrench China’s existing economic model and make further clashes with the US more likely in the future,” he said.
Sunny Bangia, a fund manager at Antipodes Partners, said emerging markets could also rebound later this year if the Chinese economy recovers.
“A lot depends on how this virus gets contained and if it can morph into something more minor,” he said.