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Coronavirus could trim 1 percentage point from China GDP growth

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    Reuters

Shanghai, China   /   Tue, February 11, 2020   /   11:56 am
Coronavirus could trim 1 percentage point from China GDP growth A security guard checks the temperature of people entering Yu Park in Shanghai on February 6, 2020. (AFP/Noel Celis)

The coronavirus outbreak could trim China’s full-year economic growth rate by as much as 1 percentage point in 2020, a senior member of a Chinese government think tank said in comments published on Tuesday.

Zeng Gang, vice chair of the National Institute for Finance and Development, compared the current crisis with the SARS epidemic of 2003, when China’s growth declined by about 2 percentage points in a single quarter.

“The impact of this epidemic on the economy in the first quarter is expected to be comparable,” Zeng said in a commentary published in the 21st Century Business Herald newspaper.

“At present, according to different scenario assumptions, researchers expect the negative impact of the epidemic on full-year GDP growth to be in the range of 0.2 percent to 1 percent.”

If the official response to the epidemic is timely and effective at limiting its spread, long-term growth trends would not be significantly affected, Zeng said.

“But in the short term, the epidemic’s impact on economic activity cannot be ignored, especially with tertiary industries and small enterprises with tight cash flows facing greater pressures,” Zeng said.

Zeng said difficulties for small companies could prompt a rise in bankruptcies and put upward pressure on the unemployment rate in the first quarter.

“The employment situation is not optimistic. This will also pose a serious challenge to the macro policy goal of ‘employment first’,” he said.

Chinese President Xi Jinping said on Monday that the government would prevent large-scale layoffs, Chinese state television reported.

China’s central bank has taken steps to support the economy, including reducing interest rates and flushing the market with liquidity. It has also said it will provide special funds for banks to lend to businesses.

Analysts at Citi said they expect growth to slow significantly despite expectations of more proactive fiscal policy and more accommodative monetary policy.

“Assuming the virus is contained by the end of March, we revise down our 20Q1 GDP growth forecast considerably to 3.6 percent and the annual growth modestly to 5.3 percent”, Citi analysts said in a note. Citi previously forecast first-quarter growth of 4.8 percent and full-year growth of 5.5 percent.