The coronavirus outbreak will have a “significant” impact on Chinese growth, economists have warned, with the “wildcard” of still unknown infections posing potentially serious risks for the global economy.
Shares in Asia Pacific continued to fall on Tuesday in the wake of heavy losses at the start of the week which has seen the death toll from the outbreak in China almost double in two days to 105.
The number of infections has risen to 4,500, – that’s up 45% from Monday, with China’s authorities confirming the virus can be transmitted by “respiratory droplet transmission” or by touch.
Markets in mainland China are closed until 3 February at the earliest, providing a bulwark to losses, but the financial contagion has spread across Asia and the rest of the world.
South Korea, where a fourth case was confirmed on Tuesday, saw its Kospi index fall more than 3% and Australia’s ASX200 was off 1.35%. Shares in Europe and the US suffered similar heavy losses on Monday. The yuan, China’s currency, dropped to its lowest level for a month.
Economists agreed that the outbreak will have a negative impact in China but the lack of understanding about how the virus spreads and how bad it might be was adding to uncertainty to the mix and compounding investor concerns.
Citigroup said on Tuesday: “The wildcard is not the fatality rate, but how infectious the Wuhan virus is. The economic impact will depend on how successfully this outbreak is contained.”
The consultancy Capital Economics said the impact could be similar to the Sars outbreak in 2003 which knocked three percentage points off growth
“The outbreak is developing too rapidly to predict with any confidence the final extent of the economic damage,” said Capital’s chief Asia economist Mark Williams. “But it is now certain that the outbreak will have a significant impact on China’s GDP this quarter.”
And although China recovered quickly from Sars, Williams said the local economy was much stronger back in 2003 and was not facing the cyclical and structural headwinds posed by slowing population growth and industrialisation.
Gerard Burg, senior international economist at the Australian bank NAB, agreed that it was hard to predict the impact of the outbreak because there was so little information or data coming out of China.
But he said there would be a “big flow-on effect outside China, especially in south-east Asia because of the growing importance of Chinese tourism”.
He said countries such as Thailand, which depends on China for around one quarter of its 10 million annual tourists, “really jumps out” because Thailand may be hesitant about people travelling there from China and the Chinese, with many cities in lockdown, would not be able to travel.
“South-east Asia already felt the big brunt of the US trade war so there is potential for a negative impact,” he said.
Chinese authorities stepped up their attempts to control the spread on Tuesday as the capital Beijing recorded its first fatality from the outbreak and the country’s second city, Shanghai, said it now has 13 confirmed cases.
Another large industrial city, the steel-making centre of Tangshan, said that it was suspending public transport, adding to dozens of similar moves across the country where millions of people are in lockdown.
Viet Nguyen, a senior research fellow in macroeconomics at the University of Melbourne, said that the restrictions already placed on many areas would mean Chinese consumers were spending less and making fewer journeys which would harm the economy.
It was difficult to say what the final impact would be, he said, noting that Hubei, the epicentre of the outbreak, was not a major industrial area.
But he added: “It depends how well China can contain the outbreak. If it spreads from Hubei into the manufacturing hubs on the east coast and south-east coast then there may be more of a problem.”