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As Coronavirus Spreads, Economists Run the Numbers on China

(Bloomberg) -- China’s fragile economic stabilization 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 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 expects “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 U.S.

While the virus’s arrival in the U.S. 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.

What Bloomberg’s Economists Say...

“The changing structure of China’s economy increases the risks. A larger services sector and bigger role for consumption mean a disease outbreak that hits shopping, eating out, and other leisure activities will have a bigger impact. A larger role for financial markets means more potential for shocks to trigger a blow to sentiment.”

--Tom Orlik and Chang Shu

Terminal clients can read the full note HERE

UBS economists Wang Tao and Ning Zhang noted the ongoing peak travel season around the Lunar 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 & catering, travel activities likely to be hit, especially in Q1 and early 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.

(Updates with Barclays comments in the third paragraph.)

--With assistance from Garfield Reynolds.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, James Mayger

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