China virus outbreak pressures already weakened economy

Maoyan Entertainment

27/01/2020 10:08

By Gabriel D. Crossley
    BEIJING, Jan 27 (Reuters) - A coronavirus outbreak in China
which has killed 81 people and spread to many countries is
expected to hurt its economy, an engine of global growth, though
analysts say it is too early to quantify the overall impact on
businesses and consumers.
    The consensus is that in the short term, economic output
will be hit as Chinese authorities step up preventive measures,
impose travel restrictions and extend the Lunar New Year
holidays to limit the spread of the virus. 
    Millions who usually travel during this period have
cancelled their plans, with the government ordering that full
refunds be provided to air and rail passengers
    Shanghai said on Monday that companies cannot restart
operations before Feb. 9, and businesses in the eastern Chinese
manufacturing hub of Suzhou have been ordered to stay shut until
at least Feb. 8. 
    The government has lengthened the week-long Lunar New Year
holiday nationally by three days to Feb. 2.  urn:newsml:reuters.com:*:nL4N29W0J7
     Wuhan, a city of 11 million and the epicentre of the virus
outbreak in central China, is already in virtual lockdown and
severe limits on movement are in place in several other Chinese
cities.  urn:newsml:reuters.com:*:nL4N29V00T
    Many analysts are turning to Severe Acute Respiratory
Syndrome (SARS), a coronavirus that originated in China and
killed nearly 800 people globally in 2002 and 2003, to better
understand the likely longer-term effects. 
    "The economy rebounded quickly after SARS faded away," said
Larry Hu of Macquarie Capital, in a note to clients.
Transportation, restaurants and retail sales were hit, but Hu
said on the whole SARS was "just a blip which didn't change the
big trend."
    This time, however, analysts say China's increased reliance
on consumption to drive the world's second-biggest economy
compared to early 2000s, could undermine growth.
    "In China during 2019, consumption contributed about 3.5
percentage points to the overall real GDP growth rate of 6.1%. A
back of the envelope calculation suggests that if spending on
such services fell by 10%, overall GDP growth would fall by
about 1.2 percentage points," said analysts from S&P Global
Ratings in a note. 
    The early data make for sober reading.
    The usual Lunar New Year rush of spending on travel, tourism
and entertainment is taking a beating already. Overall passenger
travel declined by nearly 29% from a year earlier on the first
day of the Lunar New Year, a transportation ministry official
said. 
    With many cinemas closed, China's theatres earned 1.81
million yuan  ($262,166.86) from movie tickets on the first day
of Lunar New Year, down more than 99% from the same day the
previous year, according to data from Chinese movie-ticketing
company Maoyan  1896.HK . 
    Notably, external conditions in 2002-03 were favourable,
whereas the coronavirus outbreak is "adding to existing growth
headwinds," said analysts from Nomura in a note. China's GDP
growth slumped to near 30-year lows in 2019, pressured by
sluggish domestic demand and trade frictions with the United
States. 

    GLOBAL IMPACT
    China also now contributes more to global economic growth
than it did 17 years ago, meaning any big domestic impact
stemming from the virus will ripple through worldwide. 
    World shares fell to their lowest in two weeks on Monday on
virus concerns, with demand spiking for safe-haven assets such
as Japanese yen and Treasury notes.  urn:newsml:reuters.com:*:nL8N29W1L8
    Regions reliant on tourism, especially Chinese tourists,
like Hong Kong, Thailand, Vietnam, Singapore and the Philippines
seem most at risk of spillover effects from the virus, said
Louis Kuijs, Head of Asia Economics at Oxford Economics, in an
email to Reuters. 
    The virus has already spread to more than 10 countries,
including the United States, France, Australia, and Singapore,
although all the 81 deaths have so far occurred in China.
    Singapore, the Southeast Asian financial and tourism hub,
earlier on Monday warned of an economic hit from the outbreak.
    "We certainly expect there to be an impact on our economy,
business and consumer confidence this year especially as the
situation is expected to persist for some time," Singapore's
trade minister Chan Chun Sing said Monday.  urn:newsml:reuters.com:*:nS7N28000F
    
($1 = 6.9040 Chinese yuan renminbi)

 (Reporting by Gabriel Crossley
Editing by Shri Navaratnam)
 ((Gabriel.Crossley@thomsonreuters.com; +86 10 5669 2127;))