THE SEEMINGLY FAST GLOBAL SPREAD PRESENTS A BIG RISK (as also reflected in market reaction).
Covid-19 (Coronavirus) update: Global economic recovery delayed, not derailed
Economic impact: There will be a significant impact in the first quarter of 2020 (in China and the global economy). But this is unlikely to be of a lasting nature as economic activity is expected to rebound in Q2 and policy support is likely to limit spillovers to labourand credit markets. While there is downside risk to my growth forecasts (i.e. my China GDP growth forecast likely to be revised down from 6% to 5.6%), it is too early to judge the exact impact. Fortunately it still seems that the daily infection rate in China is declining. Virus probably close to peak –in China…
Risks: the mortality rate has risen over the past week and the global spread seems to have accelerated (Italy, Middle East. South Korea).
My take: Global economic recovery delayed, not derailed -more severe downside if the virus is not contained soon. Expect policy support.
COVID-19 outbreak in China:
•Virus originated in a wet market in Wuhan (in Hubei province in central China) food market. One patient had shown pneumonia-related symptoms as early as December 12.
•Similarity to the SARS outbreak: the virus also resides in animals such as bats. It is able to migrate to humans through close contact between humans and animals. Human to human contact also confirmed.
•In contrast to the attempts to cover up the news of the SARS epidemic, Chinese health authorities alerted outside bodies relatively quickly, including the World Health Organisation(WHO) on December 31.
•The virus seems to be peaking, with recoveries rising sharply and daily infections falling since 4 Feb.
China’s response has been rapid: (far more so than during the SARS crisis)
•Wuhan quarantined in a bid to slow the spread of a deadly virus; Travel restrictions: 20 cities, 56m people.
•First SARS case was Nov 2002; WHO was notified only on 10 Feb 2003; State Council meeting that ordered stepped-up efforts was only in April 2003. Now, On January 20, President Xi ordered “all-out prevention and control efforts”
Economic lessons from SARS:
•Impact on full 2020 growth likely limited, but will impact quarterly sequential growth more severely.
•Most severe impact likely on tourism sector (foreign and domestic tourist numbers likely to fall sharply)
•Next most affected will be retail sales and catering services. But impact on retail sales likely less severe with growth of online sales.
•Transportation sector will also experience large impact, impact on industrial production, exports, construction and fixed investment was muted during SARS. Shutdowns of factories and supply-chain impact potentially big.
•BUT, quicker reaction now might have a big impact in limiting negative economic impact.
