The economic impact of the virus is still impossible to determine, but state media and some economists have said China’s growth rate could drop two percentage points this quarter due to the outbreak, which has crippled large parts of the country. A decline of this magnitude could result in a loss of growth of $ 62 billion.
The coronavirus, which first appeared in the central city of Wuhan, has already killed more than 200 and infected more people than the SARS epidemic in 2003. A disease of this magnitude was not even on the radar. china radar. Before the outbreak, the government was more concerned that social unrest was its “black swan” problem – an unlikely but chaotic event officials feared could be spurred by rising unemployment.
Now Beijing is scrambling to stop the virus from wreaking havoc on its economy. The ruling Communist Party recently gave Premier Li Keqiang responsibility for combating viruses. The decision was a clear signal that stopping the virus is the government’s “top priority” right now, the official People’s Daily newspaper wrote in a recent comment.
So far, policymakers have taken action to help the businesses most affected by the rapid spread of the disease.
Central and local governments have so far allocated $ 12.6 billion for medical treatment and equipment.
Big banks have cut interest rates for small businesses and individuals in the hardest hit areas. And the Bank of China has said it will allow residents of Wuhan and the rest of Hubei province to delay repayment of their loan for several months if they lose their source of income due to the disruption.
Aggressive action
The government will likely have to be even more aggressive in the coming months to avoid a more serious slowdown, according to Chinese economist Zhang Ming.
Zhang, who works at the Chinese Academy of Social Sciences, wrote this week that he expects economic growth to slump by a percentage point to 5% in the first quarter, assuming the epidemic lasts until the end of March. He described this as his most optimistic scenario, but did not give a specific forecast if the outbreak were to last even longer.
The government could cut taxes and increase spending on public health and vocational training, Zhang said. He also expects local governments to spend more on infrastructure. By stimulating economic activity and creating jobs, he added, cities can compensate for any weakness in private investment in real estate and manufacturing.
The central bank is also expected to make further interest rate cuts to stabilize the economy, Zhang said. Overall, he said such measures could help growth rebound in the next quarter and push annual GDP growth to around 5.7%. While this is lower than last year’s 6.1% growth, it would be in line with many analysts’ expectations.
Others take a more pessimistic view.
Nomura analysts believe growth could fall by two percentage points or more in the first quarter. The Global Times, a state-run tabloid, wrote on Friday that the epidemic could cut GDP growth by two percentage points this quarter, citing industry insiders. The government’s efforts to contain the virus by extending the Lunar New Year holiday and forcing factories to close could “take a piece of the country’s manufacturing industry and disrupt the global supply chain.”
Measure the impact
Other sectors may have more to lose at this time. Tourism – a multibillion-dollar industry during the Lunar New Year – has been decimated as the government quarantines major population centers and people avoid travel for fear of infection. Major travel agencies, hotels and airlines offered refunds for most of February, while some airlines suspended services to and from China.
Zhang and other analysts have suggested the fallout could be even more severe than after SARS, the respiratory illness that briefly plunged China’s economic growth before rebounding nearly two decades ago.
The spread of the coronavirus threatens to cause job losses and push up consumer prices, exacerbating the economic problems that already exist.
The job market is already under strain this year. Industries that traditionally create a lot of jobs, such as the tech sector, have been hit by the economic downturn. The coronavirus outbreak will make matters worse, according to Zhang.
The 290 million Chinese migrant workers are among the most exposed to an economic crisis. Many of them travel from rural areas to cities to take up construction and manufacturing jobs or do low-paying but essential jobs, such as serving tables in restaurants, delivering packages or acting as janitors.
But as many factories and businesses remain closed, millions of those workers could struggle to find jobs after the extended Lunar New Year vacation ends. More than 10 million migrant workers in Hubei province alone could also face discrimination from employers fearing to spread the virus.
Zhang warned that China’s unemployment rate – already a concern for officials – could reach an all-time high in the coming months. The rate traditionally hovers around 4% or 5%.
Other challenges
Dealing with the disease will make some of China’s other issues much more difficult to resolve, including its delicate trade relationship with the United States.
Even so, at least one analyst believes the trade war is unlikely to escalate simply because China is “temporarily” unable to honor its trade commitments. The United States is in an election year, and such action could jeopardize President Donald Trump’s campaign, said Ken Cheung, chief foreign exchange strategist for Asia at Mizuho Bank.
