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China’s novel coronavirus is expected to drag the country’s gross domestic product (GDP) for the first quarter of this year lower to 5 percent, according to the latest report from ANZ Research.
The novel coronavirus (2019-nCoV) at the time of writing has claimed 170 victims, with 7,808 confirmed cases in China alone, according to the country’s National Health Commission.
The outbreak and its aftermath will likely drag China’s industrial production and exports, based on a loss of 3.5 working days in the quarter while a plunge in tourism will trim the services sector’s GDP growth by 0.9 percent.
The government will deliver targeted measures to support employment among small and medium-sized enterprises (SME). The People’s Bank of China will likely frontload a RRR cut of 50bps and as well as trim the loan prime rates by 5bps in Q1, the report added.
The virus will have a significant impact on tourism. According to the National Bureau of Statistics, tourism accounted for 4.5 percent of total GDP in 2018. Conservatively, zero travel activity during the 10 days of holidays (from January 24 to February 2) can be assumed. In value-added terms, it will trim the services sector’s GDP growth by 0.9 percent.
However, the outbreak should have a limited impact on other services segments such as wholesale, finance and information communications. Similar to the SARS outbreak in 2003, the novel coronavirus will have no direct impact on agricultural output.
As the labour-intensive service industry represents 54 percent of China’s total GDP in 2019 compared with 42 percent in 2003, the impact on employment will be larger this time. To meet the country’s first ‘centennial goal’ to wipe out poverty, the government will surely implement some supportive measures. If the current situation stabilises by end-Q1, counter-cyclical policy measures will help offset some losses.
"Such measures will primarily involve targeted moves to stabilise employment, mainly through support for SMEs, and preferential credit policy for businesses. The PBoC will maintain sufficient liquidity in the money markets. We see the likelihood of a RRR cut of 50bps in Q1, with a small reduction in the loan prime rates by 5bps within the next two months," ANZ Research further commented in the report.
