UK Edition
Businesses in the UK and eurozone are starting to suffer the effects of the coronavirus as exports to Asia slumped in February.
Domestic demand held up well last month and kept companies growing, according to the latest purchasing mangers' index (PMI) surveys from data firm IHS Markit.
However, the influential monthly report also revealed that damage from Covid-19 is spreading through the West.
Chris Williamson, of IHS Markit, said survey data suggested the British economy will grow by 0.2pc in the first three months of this year, after stagnating at the end of 2019 - but added a downturn could be about to strike.
He said: “Whether this expansion can be sustained in coming months is starting to look increasingly at risk.”
Growth in the country's powerhouse services sector, which accounts for four-fifths of private sector activity, slowed a touch last month as the PMI slipped from 53.9 to 53.2, while the export index returned to negative territory, down from 50.4 to 47.7.
A PMI score of above 50 indicates growth on the month, while a figure below 50 shows a contraction.
Mr Williamson said the outbreak had hit tourism numbers, harmed the travel and transport industries and also damaged demand by knocking consumer confidence and sparking turmoil on the markets.
On the Continent, Germany’s services PMI suffered due to weaker foreign demand. Strong domestic trading kept the recoveries in France and Italy on track, though there are indications both face a tougher March due to the virus outbreak.
The relatively positive numbers are likely to change in the next few months, as firms and households rein in spending in response to the outbreak and the authorities force schools and businesses to shut to halt its spread, Claus Vistesen of Pantheon Macroeconomics said.
He said: “Italy is particularly at risk here given the initial flurry of cases in the northern part of the country, and we expect the survey data here to be particularly grim in the next few months.”
It ramps up pressure on the Treasury to boost the economy with higher spending and tax cuts in next week’s Budget, and could force the Bank of England to cut interest rates.
Elizabeth Martins, an economist at HSBC, said: “While both might have intended to proceed with caution, the global outbreak of Covid-19 and the consequences for markets mean now is not the time to hold back."
She expects the Bank to follow the US Federal Reserve with a cut of 0.25 percentage points to 0.5pc in March, possibly even before its scheduled meeting at the end of the month.
The European Central Bank (ECB) is also expected to act at its meeting on Thursday.
Wolfgang Bauer, of M&G Investments, said it could ramp up a so-called quantitative easing programme where new money is created to buy bonds and pump up the economy.
At present the ECB spends €20bn a month through the scheme, but he said this could be ramped up to €80bn.
China’s Caixin PMI dived to a record low of 26.5 – far below the 48 which economists expected.