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Chinese economy affected by coronavirus set to recover soon

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Chinese economy affected by coronavirus set to recover soon

The coronavirus-hit Chinese economy will grow at its slowest rate since the financial crisis in the current quarter, according to a Reuters poll of economists who said the downturn will be short-lived if the outbreak is contained.

A Feb. 7-13 Reuters poll of 40 economists based in mainland China, Hong Kong, Singapore, as well as Europe and the United States, predicted China’s annual economic growth in the first quarter of 2020 to slump to 4.5% from 6.0% in the previous quarter.

That drop was expected to drag down the full-year growth rate in 2020 to 5.5% from 6.1% in 2019, its weakest since at least 1990 when comparable records began.

However, economists were optimistic the economy would bounce back as soon as the second quarter, with growth than forecast to recover to a median of 5.7 per cent, according to the poll.

That figure was pushed higher by several optimistic forecasts from economists based in mainland China. The range was 2.9%-6.5%.

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The coronavirus was first detected in the Chinese city of Wuhan – a nerve center in the global supply chain with a population of just under 11 million – and so far has claimed over 1,300 lives in China. That outstrips fatalities from the SARS outbreak in 2002-03 which killed 774 people worldwide.

“Nobody knows the damage China’s virus containment efforts will have on growth, and we probably never will for sure, given the opacity of the statistics. We reckon true GDP growth will fall below 2% in Q1, from 4.0% in Q4, which already was substantially lower than the official 6.0%,” said Freya Beamish, chief Asian economist at Pantheon in London.

“The lost production probably will be made up over the remainder of this year. But some service sector activity simply will be lost… people aren’t going to get their hair cut twice because they missed getting it cut in Q1, or buy two coffees to make up for missed consumption.”

The enforced shutdown started during the Lunar New Year – usually, the busiest time for most services businesses and according to most economists will accelerate an already-noticeable downturn before the outbreak.

When asked to comment on what would happen to the economy if Chinese authorities failed to contain the virus from spreading rapidly, some mainland economists were reluctant to respond.

Growth was expected to slow to 3.5% in the first quarter in a worst-case scenario, according to a median from 15 economists in response to a separate question, with forecasts ranging between zero and 5.5%.

“I think the virus will be under control by April. However, in the worst-case scenario, growth may fall to 2-3% in the first quarter and to 5% in (full-year) 2020,” said Bingnan Ye, a senior macroeconomic analyst at Bank of China International in Beijing.

Their 2020 forecast matched the median worst-case outcome and lined up with the Chinese government’s forecast for the full-year economic growth rate to fall as much as 1 percentage point in 2020.

“We do not expect a speedy recovery for the economy, even in the unlikely event that there are no new confirmed cases. After the coronavirus has been contained, it may still take four quarters to see a full recovery,” said Iris Pang, a Greater China economist at ING in Hong Kong.

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“Compared to 2003’s SARS, this is a lot more damaging.”

Since then, China’s economic composition has changed significantly to become a more consumption and service-driven economy from being the world’s factory before.

China’s share of the global economy has quadrupled to 16% since the SARS outbreak, so any major disruption to economic activity is likely to have a bigger impact on the world economy now.

“Every day is a deadline in February as Wuhan coronavirus data roll in,” noted Lee Hardman, currency strategist at MUFG, the most accurate forecaster for Asian currencies in 2019. “For the yuan, the overall depreciation story continues.”


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