Economists run numbers on China as virus spreads

  • Corporate News
  • Thursday, 23 Jan 2020

Monitoring effort: Staff disinfecting the Hankou Railway Station in Wuhan. Chinese officials are stepping up monitoring of domestic transport links as the death toll increased to nine from six previously. — AFP

SYDNEY: China’s fragile economic stabilisation could be at risk if authorities fail to contain the new virus currently sweeping across Asia, economists have warned.

UBS Group AG, Nomura Holdings Inc and Barclays Bank PLC reached back to the 2003 severe acute respiratory syndrome (SARS) outbreak for guidance on potential impact.

UBS noted that “history does not repeat itself, but it rhymes, ” while Nomura said that based on the outbreak 17 years ago, it expected “increased downward pressure on China’s growth, particularly in the services sector.”

Barclays expects the “economic impact from the virus is likely to be transitory, with the effects felt more in transportation and retail sales.”

Chinese officials are stepping up monitoring of domestic transport links as the death toll increased to nine from six previously. Health officials around the world are racing to gauge the danger posed by the SARS-like virus as confirmed cases have stretched to five additional countries, including the first diagnosis in the US.

While the virus’ arrival in the US highlights the dangers of it spreading and impacting economies around the world, even if it’s contained to China, there would still be a hit to global growth.

That’s because China’s weight has more than doubled since the 2003 SARS epidemic. It is estimated to account for about one-fifth of the world economy this year, compared with 8.7% at the time of SARS, International Monetary Fund data show.

UBS economists Wang Tao and Ning Zhang noted the ongoing peak travel season around the Chinese New Year “is a tremendous challenge, which could complicate the disease diffusion.”

“If the pneumonia couldn’t be contained in the short term, we expect China’s retail sales, tourism, hotel and catering, travel activities likely to be hit, especially in the first quarter (Q1) and early second quarter (Q2), ” UBS said.

“Our forecast of sequential growth rebound in Q1 and Q2 2020 would face some downside risk. The government would likely strengthen its policy easing to offset the shock from the pneumonia, especially for those directly affected sectors.”

Barclays economists including Chang Jian also see prospects for targeted credit and fiscal support if the spread intensifies. — Bloomberg

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