Impact Of Coronavirus On Chinese Economy Could Be Worse Than SARS

The very fast spreading of the coronavirus in China has forced the Chinese government take the unprecedented measure of extending the Lunar New Year holiday by as much as a week in some cases as well as the step of some cities being quarantined will have an impact on the second largest economy of the world according to analysts.

The timing of the emergence of the coronavirus just before the Chinese New Year was a threat from the beginning as it is not only the largest festival for the Chinese but also a very large economic event. Last year, more than 1 trillion yuan ($145 billion) was spent on this occasion by Chinese consumers in shopping, dining, entertainment and travel, said a report by the Chinese state news agency Xinhua.

The imposition of restrictions on traveling because of the fear of the spread of the virus means that Chinese consumers are not spending as much this week as other years. But since government offices and schools will remain closed during the extended holiday which is expected to impact millions of people in China. Chinese authorities have extended the holidays till February 2 throughout the country while by a week for in Shanghai and several provinces.

The head offices of some of the largest Chinese companies such as Tencent, Huawei and Alibaba will also remain shut. Extension of holidays until February 9 has been announced by Tencent for it’s about 54,000 employees.

Analysts have said that it is difficult to predict the exact extent of the economic hit. However it should also be mentioned that the entire country has not stopped working. For example, the Shanghai Stock Exchange is set to commence business on February 3. And even in those areas that are quarantined, one can find grocery stores and food delivery services still operating though in a restricted manner.

About 0.3 percentage points off China’s first quarter growth is likely to be knocked off, predicted ING economist Iris Pang.

However, prediction that the impact of the coronavirus is going to be more than that of the SARS in 2003 was made by Tommy Wu, analyst at Oxford Economics. This is because of the faster rate of spread of the coronavirus compared to SARS and the its emergence coinciding with the New Year holiday.

This has prompted analysts at Nomura to predict that China’s first quarter growth could be hit by as much as more than two percentage points because of the virus outbreak. That would be more than what had taken place during the SARS outbreak.

The hit to China’s annual growth rate could be even more severe, said Patrick Perret-Green, an economist with research firm AdMacro.

“There will be no quick recovery. China was growing strongly [during SARS], as was the rest of the world,” he said. “Now China and the global economy is like a patient on dialysis, and somebody just pulled an IV out.”

(Adapted from CNN.com)



Categories: Creativity, Economy & Finance, Strategy, Sustainability, Uncategorized

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