THROUGHOUT 2019, THE trade tensions between the US and China kept global markets on tenterhooks. There was widespread relief when the world’s top two economies signed the first phase of a trade agreement on January 15. Just a fortnight later, however, a fast-spreading virus is threatening to wreak the hopes of a global economic recovery the trade deal had raised.
As the coronavirus epidemic started spreading during the Chinese new year holiday season, consumer companies, tour operators and airlines are all bracing for a tough period. Chinese authorities said travel on the first day of the lunar new year holiday declined 28 per cent, with air and rail travel seeing a 40 per cent year-on-year drop.
And the virus has hit businesses not just within China. Apple CEO Tim Cook said that the company has shut a store and restricted employee travel because of the outbreak. Several of its factories will be closed till February 10. Carmaker Honda and some other companies have extended the holidays in China. The rapid spread of the virus has brought back memories of the SARS outbreak in 2003, which had cost the global economy $40 billion, say analysts.
The outbreak rattled equity markets globally and investors sold stocks in droves. Crude prices also tumbled on expectations of reduced demand in China. “The impact of the outbreak on China will be severe, as Wuhan is the hub of transport and industry for central China. With sudden shift in expenditure, growth will be affected in China and globally,” said Soumya Kanti Ghosh, group chief economic adviser, State Bank of India.
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China’s export-driven economy has slowed down of late, and the curbs imposed to contain the outbreak will impact its domestic consumption as well. Iris Pang, Greater China economist at ING, estimates China’s GDP growth rate to drop by 0.3 per cent, to 5.6 per cent, in 2020. “We expect retail sales in China to drop from 8 per cent year-on-year to 3 per cent to 4 per cent. Meanwhile, global tourism, which relies heavily on Chinese tourists, could experience a negative growth of more than 30 per cent,” she said.
China's woes could further impact global growth, warn analysts. At the time of the SARS outbreak in 2003, China’s share in global economic output was around 4.3 per cent. In 2019, it accounted for 16.3 per cent, according to the International Monetary Fund. “If we were to correlate this to SARS, then China’s economy was impacted by around 2 per cent when SARS hit. What kind of impact the coronavirus epidemic has on growth will depend on if it is contained in the next few weeks or it continues to spread,” said Mayuresh Joshi, head of equity research, India, at William O’Neil.
India’s economy, being largely domestic consumption-driven, may not be affected much, say analysts. In fact, India’s exports may gain a bit if countries decide to shift some of their sourcing from China, said Madan Sabnavis, chief economist at CARE Ratings.