China coronavirus: public health measures will hurt economy in the first quarter, analysts say
- Effects of disease control policies could see ‘economic growth slow by as much as four percentage points’ in the quarter, Plenum Group says
- Lockdowns within Hubei province could depress national gross domestic product another 1.5 percentage points, it adds
China’s already weakening economy is set to take another hit with businesses across the country remaining shut for an extended public holiday and tourism grinding to a halt, as authorities struggle to contain the pneumonia-like coronavirus that has spread across the nation.
A former Chinese government adviser called for measures such as reducing the tax burden for small and medium-sized enterprises to stimulate the economy.
The government’s extension of the Lunar New Year public holiday period – which will keep workers at home for an additional three days until Sunday – could shave two percentage points off overall outputs in the first quarter, Plenum analysts said.
Stock exchanges in Shanghai and Shenzhen are also expected to observe the national extended period, while major cities Shanghai and Suzhou have called for businesses to remain shut around a week beyond that.
Meanwhile, cities across the country are taking measures to reduce exposure, such as halting public transport, closing cinemas and cancelling public events.
China’s movie box office receipts on the first day of the Lunar New Year only reached 1.81 million yuan (US$260,000), a fraction of the 1.45 billion yuan achieved on the same day last year.
Transport, retail and tourism as well as manufacturing are among those areas noted by analysts as potential pain points, with several looking to the 2002-03 epidemic of severe acute respiratory syndrome (Sars) as an indication of what could be lie ahead for China’s economy this time around.
In a note on Sunday, Oxford Economics said the ongoing outbreak “could potentially be a high impact but short-lived event, similar to the Sars experience in 2003”.
During Sars, China’s GDP growth fell to 9.1 per cent year on year in the second quarter of 2003, from 11.1 per cent in the previous quarter. It recovered to 10 per cent in the second half of 2003, with consumption and travel the most heavily affected sectors, the group noted.
Economic impacts would be “less severe compared to the Sars episode, at least for now”, due to a quicker response by authorities, the group said, noting that it expected the effect to be short-term.
“The faster reaction time by the Chinese authorities this time around, with increased transparency and firm actions taken recently, are certainly helpful in mitigating the impact on public health, confidence and the economy,” Oxford Economics said. “We also expect the government to roll out measures, if needed, to stabilise growth – though we do not expect significant monetary easing amid the ongoing campaign to rein in financial risks.”
Chinese economist Huang Yiping, a former adviser to the monetary policy committee of China’s central bank, said that, based on the example of Sars, it was too early to fully analyse the extent of the coronavirus’ economic impact.
As control of the virus took top priority, the economy would see a lower demand for services, he said, as well as disruptions in production, investment and exports.
These factors could lead to unemployment and a “deteriorating financial and fiscal environment”, he said.
“Unfortunately, these shocks happened at a sensitive time. The economic growth in 2019 has dropped significantly, from 6.4 per cent in the first quarter to 6 per cent in the third quarter. The general expectation is that the fourth quarter may fall below 6 per cent, and this has triggered the debate on whether to ‘guarantee six’,” Huang wrote in an article published on Monday on the WeChat account of the China Finance 40 Forum, a non-profit financial think tank – referring to the bottom line of achieving 6 per cent economic growth.
Huang noted that the fourth quarter held some stabilising economic signs, but that “if affected by the epidemic, the downward pressure on economic growth in the first quarter of 2020 will increase again, which will inevitably directly affect the lives of ordinary people and the confidence of investors”.
To stem the negative effects, Huang suggested a series of measures the central government could take, including providing support for online consumption, helping small and medium-sized enterprises to overcome difficulties, maintaining loose monetary policy and boosting public infrastructure spending, such as building more hospitals and schools in remote areas.
The State Council could also consider setting up an emergency aid fund, he wrote.