Europe: Downside risks increase again as coronavirus spreads

The spreading of the coronavirus and its adverse impact on the Chinese economy poses yet another downside risk for growth in Europe. While it is still earl y days in terms of assessing the economic damage, we have revised down our growth forecast for the euro area in 2020 to 0.7% from 0.8% previously and 0.8% after 0.7% for the UK. Our colleagues in Asia expect the Chinese government to respond to the crisis with policy easing measure s to bolster growth, implying that the impact on growth throughout the year will be limited. Taken at face value, this would also imply only a small effect on European growth. That said, the sudden stop in production in some industries in China, while limited for the time being, could send ripple effects through global value chains that are more pronounced than the small easing reflected in the GDP figures. Moreover, infection rates in Europe may increase to an extent that might also lead to a direct impact on growth in Europe.