S&P warns coronavirus threatens to dent China’s economic growth
Chinese consumption, a key growth driver in an economy transitioning from investment, is set to take a blow from the coronavirus outbreak that hit just as millions of people set out on vacation, S&P Global Ratings said.
If spending on things including discretionary transport and entertainment dropped by 10 per cent, overall GDP growth would fall by about 1.2 percentage points, according to ‘back of the envelope’ estimates from Shaun Roache, Asia-Pacific chief economist.
“Industries exposed to China’s household spending, especially activities that take place outside the home, will likely feel the biggest economic impact of the outbreak,” Roache said. “Risk aversion and tighter financial conditions could amplify the impact, including on investment.”
The spread of a deadly respiratory virus rattled global markets on Friday, sending US stocks lower and fueling demand for havens in government bonds and gold. Oil fell for a fourth day on concern the outbreak will dent economic growth.
The S&P 500 Index posted its biggest drop since October amid reports that US officials had confirmed two more cases of the illness, which originated in China and has also spread to several countries in Asia and to Europe. Benchmark Treasury yields fell to a three-month low, while the dollar advanced for a second day.
Restrictions on travel and public gatherings have been im
plemented in Wuhan, the central province in China where the virus
was first detected, as well as in several nearby municipalities.
Hong Kong and Beijing are canceling planned holiday activities, according to local officials and state media.
Investors are exercising caution with stocks close to all-time highs, cognizant of the chance the respiratory virus migrates across the world and develops into a more devastating pandemic like the SARS illness that emerged 17 years ago. Officials in China boosted travel restrictions to cover 40mn people to contain the virus’s spread.
While the outbreak is centered in Wuhan, other large population centers including the major ‘tier-1 cities’ have begun reporting cases, S&P noted. Given the typical lag between contracting the virus and showing symptoms, consumers are likely to avoid public spaces to lower the probability of infection, it said.
Mounting fears about the outbreak have roiled financial markets, and the Shanghai Composite Index had the worst end to a Lunar Year in its threedecade history.
China’s National Health Commission said on Saturday there are nearly 1,300 confirmed cases, including 444 new ones, and that 41 people have died. It reported 237 severe cases. New cases were reported in the Asia Pacific region.
The dramatic rise in the death count in China signals the virus isn’t yet under control despite aggressive steps by authorities there to limit movement for millions of people who live in cities near the center of the outbreak.
Medical staff wearing protective clothing to help stop the spread of the deadly coronavirus, walk next to patients waiting for medical attention at the Wuhan Red Cross Hospital in Wuhan, China on Saturday