Coronavirus Will Damage China’s Economy, but to What Extent?

The China coronavirus has caused turmoil in global markets and has hurt the Chinese economy. With no end in sight to the virus and little information coming out of China, the extent of the economic ramifications remains unclear.
Kenny Fisher
China - Economy

The Year of the Rat has started off disastrously in China, as the coronavirus outbreak has claimed over 100 lives, with over 4500 confirmed infections. The virus has now reached at least 14 countries, including a host of Southeast Asian nations, the United States, Germany and France. Chinese authorities have scrambled to deal with the epidemic, which originated in Wuhan, a city in eastern China. Officials have quarantined the city and also halted public transportation, but will this be sufficient? Global markets remain on edge, as investors are wary of a mass epidemic.

China’s economy, which is already in the midst of an economic slowdown due to the trade war with the U.S. and weak global demand, will take a hit from the coronavirus, and the repercussions could be felt worldwide. Back in 2003, the SARS epidemic, which also originated in China, spread to 17 countries and killed over 700 people. The damage to China’s economy was significant, with analysts estimating that GDP declined between 0.5% and 1.5%. Chinese stock markets have been closed until at least February 3, and the Chinese yuan has slipped to its lowest level in a month. In addition to China, Asian Pacific countries are feeling the economic bite from the outbreak. The Australian and New Zealand dollars have fallen to multi-week lows, and the South Korean and Australian stock markets are down this week.

The situation is extremely serious, but how grim is grim? For now, that remains an open question. On Tuesday, Citigroup noted that “the wildcard is not the fatality rate, but how infectious the Wuhan virus is. The economic impact will depend on how successfully this outbreak is contained.”

Will China be able to cope with this epidemic? Chinese authorities have been criticized for their slow response to the outbreak. On Monday, the mayor of Wuhan admitted that city officials had withheld information about the virus, and that some five million residents had fled the city before a lockdown was imposed last week. Such reports show that the outbreak appears to be far from being contained.

There is no doubt that coronavirus will take a bite out of China’s economy, but it’s too early to estimate the extent of the damage, as the virus continues to spread and limited information is coming out of China. According to Mark Williams, chief Asia economist at Capital Economics, “the outbreak is developing too rapidly to predict with any confidence the final extent of the economic damage. But it is now certain that the outbreak will have a significant impact on China’s GDP this quarter.”

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