Economist expects virus to have short-term impact
The novel coronavirus pneumonia outbreak will deliver a sharp blow to China’s economy, but it won’t be “devastating”, and recovery will be rapid and without longterm damage, said economist Stephen Roach.
“I think the shock will last a little longer than the one-quarter hit of SARS in 2003, and the coronavirus comes at a time when China’s economy has softened. It’s serious, but it will be short-lived,” he said.
Roach is a senior fellow at the Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management. He is also former chief economist at Morgan Stanley.
He expects first-quarter yearon-year comparisons of China’s economic output will be bleak, but said the conditions will improve steadily in the second quarter.
“In the third quarter, I think you’ll see a meaningful rebound aided by measures taken by the central bank,” he told China Daily.
Official Chinese manufacturing data are scheduled to be published on Feb 29.
Roach said Chinese officials acted aggressively to contain the coronavirus, imposing travel bans and isolating entire cities. He called the actions “draconian” but necessary — and effective.
The measures crimped production, workers couldn’t travel and many supplies could not be shipped to factories.
But there are early indications that manufacturing centers along the coast are resuming production as some travel restrictions are eased, Reuters reported.
Limiting travel and instituting quarantines appear to have slowed the spread of the new strain of the coronavirus. Figures as of Thursday morning showed the virus infecting 74,576 people and killing 2,118, or about 2.8 percent of those infected.
By comparison, the severe acute respiratory syndrome outbreak in 2003 sickened 8,098 and killed 774, or about 9.55 percent of those infected. Roach, stressing that he’s an economist and not an epidemiologist, said the coronavirus appears to be more contagious but less deadly than SARS. The government’s response is the key difference between the two outbreaks.
Compared with SARS 17 years ago, he said, the government this time has been transparent and was quick to report the genome of the virus to international researchers.
“China has also been transparent in admitting the initial inadequacies of the reporting system. Compared with SARS, there has been a far more open discussion of the ramifications of this terrible outbreak,” said Roach.
The coronavirus outbreak won’t prompt international companies to transfer production to other nations because an efficient supply chain takes years to develop, and it’s impossible to move and replicate it on short notice, he said.
“Unless this turns out to be a pandemic, I think foreign direct investment will be largely unaffected,” Roach said.
Nevertheless, there will be dislocations as production cranks up, and some disruptions will be major, he said.
Apple said production of the iPhone is resuming, but returning to pre-outbreak levels will be slower than anticipated. Apple and the US stock market took a hit on Tuesday, but rebounded on Wednesday.
Roach said he looked at the consumption of coal used to generate electricity as a rough measure of the impact of the coronavirus on China’s economy.
On Tuesday, Goldman Sachs said the average coal consumption at major power companies was less than 400,000 tons, down about 40 percent from the postLunar New Year period in 2019.
But three sectors — smelting, chemicals and building materials — account for about 54 percent of China’s total industrial demand for electricity. The reduction in coal consumption may underscore the current state of these sectors, but may not be a good indication of the present situation of light manufacturing, including the export-heavy consumer electronics sector, analysts said.
The outbreak plays out against a sluggish worldwide economy, but so far the US economy, now in its 11th year of expansion, has not been hit hard.
But there are no guarantees. “(Former Federal Reserve chairman Alan) Greenspan said it best: ‘The US is not an oasis in the global environment’,” Roach said.