S&P warns virus threatens to dent China’s new growth driver

  • Economy
  • Friday, 24 Jan 2020

Pedestrians wearing protective masks stand in front of a department store on the Nanjing East Road ahead of the Lunar New Year in Shanghai, China, on Thursday, Jan. 23, 2020. A deadly coronavirus, which first appeared last month in the city of Wuhan in central China, has spread from the mainland to locations from Hong Kong to the U.S., coloring what is usually a period of celebration and reunion for Chinese people across the world with tension and anxiety. Photographer: Qilai Shen/Bloomberg

SYDNEY: Chinese consumption, a key growth driver in an economy transitioning from investment, is set to take a blow from the coronavirus outbreak that hit just as millions of people set out on vacation, S&P Global Ratings said.

If spending on things including discretionary transport and entertainment dropped by 10%, overall GDP growth would fall by about 1.2 percentage points, according to "back of the envelope” estimates from Shaun Roache, Asia-Pacific chief economist.

"Industries exposed to China’s household spending, especially activities that take place outside the home, will likely feel the biggest economic impact of the outbreak, ” Roache said. "Risk aversion and tighter financial conditions could amplify the impact, including on investment.”

Restrictions on travel and public gatherings have been implemented in Wuhan, the central province in China where the virus was first detected, as well as in several nearby municipalities. Hong Kong and Beijing are canceling planned holiday activities, according to local officials and state media.

While the outbreak is centered in Wuhan, other large population centers including the major "tier-1 cities” have begun reporting cases, S&P noted. Given the typical lag between contracting the virus and showing symptoms, consumers are likely to avoid public spaces to lower the probability of infection, it said.

Mounting fears about the outbreak have roiled financial markets, and the Shanghai Composite Index had the worst end to a Lunar Year in its three-decade history. - Bloomberg

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