Chinese Car Factories Idled by Virus Raise Risks to Global Growth

The German economy is especially vulnerable to any economic slowdown in China. A decline in the Chinese growth rate of 1 percentage point would strip 0.6 percentage points from German growth, the Ifo Institute in Munich estimated. That is in part because German factories are so dependent on components made in China.

Growth in the European Union is already close to zero. The coronavirus could be enough to shove the region into recession.

“The rapid spread of the coronavirus throughout China is quickly becoming a major source of uncertainty for the economy,” economists at ING Bank said in a note to clients.

The longer it takes to contain the virus, the greater the risk that factories outside of China could begin to fall idle. Fiat Chrysler Automobiles warned Thursday that a plant in Europe, which it declined to identify, was in danger of running short of a critical component.

“If the situation in China continues to worsen, FCA has identified potential risk within the next two to four weeks at one manufacturing facility in Europe,” the company said in a statement. The company “will continue to monitor the situation and continues to develop contingency plans.”

Mr. Fulthorpe of IHS Markit said it could be difficult for companies to quickly find substitute suppliers.

Even the lack of a small, seemingly insignificant part can cause a factory floor to go quiet. Automakers may not even know the origin of all of the components they use. They may be in for unpleasant surprises when an essential wiring assembly or other part, which they did not even know came from China, suddenly becomes unavailable.

Article source: https://www.nytimes.com/2020/02/07/business/coronavirus-china-auto-factories.html?emc=rss&partner=rss