Coronavirus poses threat to fragile world economy
This should be peak season for a 12-room hotel near the train station in the Chinese industrial hub of Wuhan. The Chinese New Year usually brings in plenty of travelers and delivers profits of around $3,000 a month.
But the place is empty. Wuhan, the center of a deadly viral outbreak, is on lockdown. “There is not a single customer,’’ said the hotel’s owner, who gave only his surname, Cui. He still has to pay rent and his utility bills. Instead of counting his earnings, he’s expecting to lose $1,500 a month.
The outbreak arrives at a bad time for Wuhan, China and the world economy.
China, with the world’s No. 2 economy, was decelerating even before the coronavirus hit.
And the world economy is coping with an unexpectedly sharp slowdown in No. 7 India, which prompted the International Monetary Fund last week to downgrade its outlook for global growth this year.
The coronavirus is drawing comparisons to the SARS outbreak, which paralyzed the economies of China and Hong Kong for weeks in 2003. But what happens in China carries a lot more weight these days: In 2003, China accounted for 4 percent of global output. Now its share is 16 percent, according to the World Bank.
“A growth slowdown in China could have sizable ripple effects across Asia and the rest of the world, given the size of China’s economy and its role as the key driver of global growth in recent years,” said Eswar Prasad, a Cornell University economist and former head of the International Monetary Fund’s China division.
No one knows exactly how the outbreak will play out or what its economic impact will be.
Authorities are still trying to better understand the new virus. It is from the coronavirus family, which also can cause the common cold as well as more serious illnesses such as SARS.
So far, China has confirmed more than 4,500 coronavirus cases and more than 100 deaths.
The Chinese government has locked down Wuhan and 16 other cities in Hubei province, isolating more than 50 million people. The United States and other countries prepared Tuesday to airlift their citizens out of Wuhan. The outbreak has brought every day business to a standstill and closed down such popular tourist attractions as Beijing’s former imperial palace, Shanghai Disneyland, Hong Kong Disneyland and the city’s Ocean Park.
The significant decline in travel has already caused United Airlines to suspend some flights to Beijing, Hong Kong and Shanghai, the airline said in a statement.
“It’s still too soon to measure what the impact is going to be from an economic perspective,’’ said Jim Baird, chief investment officer at Plante Moran Financial Advisors.
The SARS experience offers some reason for economic optimism. That outbreak, centered in southern China, initially clobbered the Chinese economy. In the April-June quarter of 2003, China’s economic growth dropped to an annual rate of 9.1 percent from 11.1 percent the previous quarter, noted economists Tommy Wu and Priyanka Kishore of Oxford Economics. But as the health crisis subsided, growth picked back up, recovering to a 10 percent annual rate in the second half of the year.
“From what we know, it’s likely to be similar this time,’’ said Andy Rothman, investment strategist at Matthews Asia. “People shouldn’t get panicked that growth is going to slow sharply’’ over a sustained period.
Still, the Chinese economy isn’t the dynamo it was in the early and mid-2000s when growth routinely hit double digits.
The Chinese economy has also been buffeted by a trade war with the United States. The two countries signed a truce earlier this month that was expected to provide some economic relief. Then the viral outbreak hit.