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Macroscope | Three ways the coronavirus crisis could play out for China’s economy in 2020
- In the best-case scenario, the crisis may blow over by the end of the first quarter, and do minimal damage to the economy
- In the worst case, if China fails to contain the virus’ spread, it could expect painful adjustments and possibly structural damage to its economy, with spillover impact on other economies
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The rapid escalation of the novel coronavirus outbreak has raised serious concern among the Chinese public, disrupting both social and economic activity, and putting the country’s health care system under strain. As the situation is still unfolding, uncertainties abound regarding the duration and severity of the 2019-nCoV epidemic, and how it will eventually be brought under control.
There are still considerable challenges ahead and it is extremely difficult to predict the outcome at this stage. It is also equally challenging to assess the economic impact of the outbreak, although it is fair to say the previous consensus that it would be smoother sailing for the Chinese economy has been significantly called into question.
In the light of the acute uncertainties, I hereby outline three possible scenarios for the epidemic and assess their corresponding impact on the economy.
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Scenario 1 assumes quick containment of the virus, as with severe acute respiratory syndrome in 2003. This would require the Chinese authorities to bring down the number of new cases swiftly, control the spread of the disease and speed up treatment. If this could be achieved in the coming weeks, most of the negative effects on the economy should be confined to the first quarter of 2020.
The shock to retail and other service industries, together with the knock-on effect on industrial sectors, could lop 1.5 to 2 percentage points off economic growth. This would take growth in the first quarter down to 4.0-4.5 per cent on a year-on-year basis, implying a quarter-on-quarter contraction of 0.5 per cent – the first since the global financial crisis.
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