S&P warns coro­n­avirus threat­ens to dent China’s eco­nomic growth

Muscat Daily - - BUSINESS -

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

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