The coronavirus outbreak is expected to “inflict a large, temporary blow” to China’s economy, S&P Global Ratings said in a report, forecasting that growth in the world’s second largest economy will decline to 5 percent in 2020 from a previously projected 5.7%.
China’s economy, however, is expected to make up the lost ground in 2021, the report’s authors said, rebounding to a 6.4% growth rate in 2021.
“Most of the economic impact of coronavirus will be felt in the first quarter, and China’s recovery will be firmly in place by the third quarter of this year,” said Shaun Roache, the Asia-Pacific chief economist for S&P Global Ratings, and Vishrut Rana in the report “Coronavirus To Inflict A Large, Temporary Blow To China’s Economy” published on February 6.
The forecast growth of 5.0% in 2020 compares with 5.7% before the outbreak, the report said. “We now expect an above-trend 6.4% growth rate in 2021, compared with our previous forecast of 5.6%.”
The viral outbreak that began in China has infected more than 34,800 people globally as of Saturday. In China, the rate of increase in new cases of the virus rose again after a brief respite, as the death toll topped 800 on the mainland and countries around the world enforced stricter measures to contain its spread.
The forecasts are based on the assumption that the virus will be contained by March 2020, the report said. “If the virus cannot be contained, a material risk, the economic impact could develop exponentially with significant credit implications,” the authors said.
In the baseline, the authors assume travel restrictions will be unwound gradually during the second quarter of the year. These restrictions directly affect economic activity in China, especially consumption, the report said.
“Household consumption will take the main hit, especially spending on discretionary goods and services as individuals avoid public spaces to minimize the risk of infection,” said Roache.
China accounts for one-third of global growth, “so a 1 percentage point slowdown in the country’s growth rate is likely to have a material effect on global growth,” Roache said. “The global impact will be felt through four real economy channels: sharply reduced tourism revenues, lower exports of consumer and capital goods, lower commodity prices, and industrial supply-chain disruptions.”
It is still early to assess the economic impact of the coronavirus on Israel’s economy, but the first sectors to be impacted are likely to be tourism and construction, a leading Israeli economist warned last week.