Coronavirus panic prompts JPMorgan to slash its forecast for China growth

• JPMorgan revised downward its first quarter and full-year growth estimates for China in the wake of coronavirus fallout.
• The first quarter of 2020 will see a sizable dip in growth, but the second quarter will bring recovery, analyst Haibin Zhu said.
• China shut down financial markets until next week, extending by three days the stock-trading freeze that was already in place for Lunar New Year.
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Coronavirus will cost the Chinese economy nearly a quarter of its growth in the first months of 2020.

That's according to JPMorgan analyst Haibin Zhu, who on Wednesday revised China's growth projections down to 4.9% for the quarter, from 6.3%. Sectors like tourism, transportation, offline retail, and entertainment will be hit the hardest, he said: "The [Lunar New Year] holiday is usually the golden season for consumer spending, and the fear factor and stay-home control measures have almost paralyzed the above-mentioned vulnerable sectors."

Coronavirus, the fast-spreading illness that has killed 132 people and infected more than 6,000, has rocked the Chinese economy and global financial markets in recent weeks. Zhu said the fallout will be concentrated in the first quarter of the year, adding that the second quarter should see 7% growth, a percentage point higher than previously projected. But that bump won't be enough to save annual growth, which Zhu notched down 0.13% to 5.80%.

Factories in major cities and provinces such as Shanghai, Guangdong, and Zhenjiang are locked down until February 9. "Undoubtedly the impact will be visible," Zhu said, adding, "if the virus outbreak keeps on escalating and factory shutdowns are extended and also expanded to other regions, then the shock will also evolve into a supply shock and the impact on China and the rest of the world will be even bigger." As of now Zhu primarily sees coronavirus as a demand-side shock to the Chinese economy.

China said Monday it would keep its major stock exchanges, which were already set to be closed for a portion of the week as the country celebrated Lunar New Year, shuttered an additional three days until February 3, Bloomberg reported. The Shanghai Composite closed down 2.8% January 23, the last day of trading before it closed for the new year. Meanwhile, offshore markets have continued to trade - after tumbling at the start of the week, futures on the FTSE China A50 rose as much as 2.6% Wednesday.