The coronavirus is leaving in China really unusual images for a country of 1.3 billion people accustomed to crowded streets, crowded shops and busy.
There are already about 10,000 confirmed cases, more than 200 dead and the outbreak spreads across twenty countries, raising fears of a pandemic given its rapidly spreading power.
In fact, the World Health Organization (WHO) on Thursday declared the one also known as Wuhan pneumonia (for the city where it originated) as a “public health emergency of international concern.”
This comes at a key time of year for the Asian giant economy and the effects have already been felt internationally.
Spending drop
All Chinese provinces have reported at least one case of coronavirus and authorities have imposed exceptional quarantine measures in ten cities, including Wuhan.
Authorities asked some 40 million people not to leave their homes for two weeks.
The image of people wearing masks to prevent contagion has become commonplace in Wuhan and many other Chinese cities.
So since the health alert on the deadly virus was launched on 31 December, millions of families remain locked up to prevent contagion and supply food by designating only one of its healthy members as the only one enabled to cross the door of the home.
The chosen one is equipped with all the security measures that he has available and goes abroad to make the purchase in the nearest open supermarket.
It can also happen that the store is running, but it is unsupplied.
In the midst of Lunar New Year celebrations, the most important on the Chinese calendar, no one is buying gifts, spending money and few go out to dine in these cities.
Lower spending this holiday season will hurt the results of many companies.
Supply chains do not work as usual and there are underserved stores in Wuhan.
Part of the “global manufacturing”, as China is known for its export power, is virtually halted and economic activity, in several areas of the country, has the brakes on.
As a result, analysts advance, the bill is going to be serious or very serious, depending on what the authorities take to contain the health crisis.
Winds against
“The economic damage to the outbreak is already beginning to be felt,” explains David Lafferty, chief strategist for French manager Natixis IM.
This is seen right now, especially in consumer and activity indicators, and warns that while China has contained the economic loss “probably will widen in the coming weeks.”
For the expert, “the outbreak is affecting China at an inopportune time” as its growth is in the slowing phase and estimates that “the health emergency will likely subtract between 1% and 2% from annual GDP.”
New Year’s celebrations move about 450 million people across China.
“This is a serious headwind” and not just for the Asian giant.
China is slowing down, the impact is also felt on global economic growth.
It should be borne in mind that in the last 20 years China’s weight in the world economy has grown significantly.
If in 2003 the contribution was US$1.6 trillion, in 2019 it was US$14 billion.
In addition, Lafferty warns that if policy makers and health officials cannot stop the spread and the health crisis drags, its forecasts could fall short.
Paralyzed production
Wuhan is home to the world’s leading domestic car and steel producers, where more than 300 of the world’s top 500 companies have a presence.
As Philippe Waechter, director of economic analysis at Ostrum AM, points out, is an industrial and transportation hub that “has been driven by the recent boom in the automotive market in China.”
Even stock markets reacted to the coronavirus.
Shanghai’s composite index fell by more than 3% in two weeks and U.S. stock exchanges have also been under pressure.
Wuhan is the headquarters of the main national car producers.
The experts consulted are clear that the markets are frightened.
Many factories remain closed and production paralyzed.
As an example, Google joined the decision of other major tech companies such as Amazon or Microsoft to close its offices in China, Hong Kong and Taiwan these days.
Automakers such as General Motors or Toyota have asked their workers to extend their Chinese New Year vacation as their factories will be closed at least until February 9.
And if that’s not enough, domestic and external tourism is at a low after the world’s major airlines have decided to freeze their flights to the country.
Historical data
If we look to what happened with previous pandemics, experience shows us that infectious diseases are never good for macroeconomic data.
Wuhan, in central China, is a populated city where 11 million people live.
“It is too early to quantify the economic impact of coronavirus, but when it comes to tackling Shocks unexpected ones like this, the most reasonable approach seems to assess precedents,” explains Gilles Mosc, AXA IM economist referring to an outbreak of another coronavirus, SARS (or severe acute respiratory syndrome) that left hundreds dead.
“In this sense, the crisis caused by SARS in 2003 reduced China’s GDP by 1.1% and 2.5% that of Hong Kong, while it had only an impact of 0.1% on U.S. GDP,” the AXA IM economist stresses.
Global contagion
But what experts agree on is that China’s presence in international markets now is not the same as it was 17 years ago.
“So the contagion in the world economy should probably be greater,” adds Moc.
China accounts for 18% of world GDP.
In the same vein, Erick Muller, Director of Strategy at investment firm Muzinich & Co.
“The universalization of an impact on the Chinese economy should not be underestimated. The country accounts for 18% of world GDP, accounts for an equivalent share of world exports and is now more intertwined with global tourism than in 2003.”
Mark Haefele of swiss bank UBS AG believes that “given the initial reports on the virus, we anticipate that the economic consequences will be less than during the SARS epidemic in 2003.”
“SARS lasted eight months, but caused a sharp drop in China’s economic growth in just one quarter, followed by a rapid recovery. THE MERS in South Korea in 2015 followed a similar pattern,” he says.
oil is also
Harry Richards and Matthew Pigott of investment firm Jupiter AM recall that the oil price crash seen these days is because the Asian giant consumes about three times more crude now than it was in 2003.
The spread of the coronavirus outbreak and the strict quarantine measures introduced to contain it, as well as the lower consumption of companies and individuals, raise doubts about the timing and strength of any cyclical recovery.
Data on global economic activity had recently signaled a “moderate recovery, as the first phase of the China-US trade agreement was broader than expected.
“The Wuhan epidemic could cripple this momentum that was gaining the global economy,” says Philipp Immenk-tter, an analyst at Flossbach von Storch Research Institute.
