Coronavirus to slow China GDP growth to 3.8 per cent in Q1

Mumbai: Global rating agencies and brokerages have started assessing the impact of the deadly coronavirus on the Chinese and global economy and they expect China’s first quarter growth to fall sharply to 3.8 per cent and full year growth to 5 per cent.

They also expect the virus to be contained by as early as March 2020 to May 2020 as it doesn’t like sunlight, high temperature and humidity.

According to Nomura, the first quarter growth rate in China may dip to 3.8 per cent before a bounce back in Q2 on pent-up demand. Outside China, Hong Kong, Taiwan, Singapore and Thailand will be impacted the most.

Virus was not so deadly outside Wuhan with just two deaths outside China and much lower mortality rate outside Wuhan in China, says brokerage firm CLSA after interaction with a leading Hong Kong-based medical expert working on such viruses for the last 25 years.

S&P Global Ratings estimates China’s full-year GDP growth will fall to 5 per cent in 2020, from 5.7 per cent projected earlier, but it feels the lost ground will be made up in 2021.

"Most of the economic impact of coronavirus will be felt in the first quarter, and China's recovery will be firmly in place by the third quarter of this year," said Shaun Roache, Asia-Pacific chief economist for S&P Global Ratings.

“We now expect an above-trend 6.4 per cent growth rate in 2021, compared with our previous forecast of 5.6 per cent,” S&P said.

“China accounts for one-third of global growth so a 1 percentage point slowdown in the country's growth rate is likely to have a material effect on global growth.

“The global impact will be felt through four real economy channels: sharply reduced tourism revenues, lower exports of consumer and capital goods, lower commodity prices, and industrial supply-chain disruptions,” S&P said.

“These spillovers could become larger if markets start to price in the risk of a material global slowdown and financial conditions tighten as risk premia rise across asset classes. Pressure on the renminbi exchange rate will be important to track, but for now, markets are taking the impact in their stride,” the rating agency said.

The impact of coronavirus is still uncertain, but Japanese brokerage Nomura expects China’s GDP growth to slow from 6 per cent year-on-year in the fourth quarter of 2019 to 3.8 per cent in the first quarter of 2020 (previously 5.8 per cent), before rebounding to 6.4 per cent in the second quarter. For full year of 2020, Nomura now expect 5.6 per cent versus 5.7 per cent earlier.

“For the rest of Asia, the economic impact for now is mainly indirect via weaker China demand, disruption to supply chains, collapse in visitor arrivals from China and lower commodity prices rather than direct lower tourism revenues, impact on vulnerable local services, as infections outside China are low,” Nomura analyst said.

However, IHS Markit, a London-based information provider said on Friday, said the outbreak of coronavirus will have a larger negative effect on the global economy than the SARS (Severe Acute Respiratory Syndrome) outbreak in 2003, as any slowdown in Chinese economy would send not ripples but waves across the globe.

"The slowdown in Chinese growth may be a significant drag on global growth. In 2002, China contributed 23 per cent of world GDP growth, in 2019 China contributed an estimated 38 per cent of world growth," IHS said.

In 2019, China's oil demand was 13.9 million barrels per day or 14 per cent of world market as compared to 5.6 million bpd in 2003 which equated to 7 per cent of world demand.