As Wuhan virus spreads, economists warn of potential threat to China's economy

Commuters wearing face masks walk in Hankou railway station in Wuhan on Jan 21, 2020. PHOTO: AFP

SYDNEY (BLOOMBERG) - China's fragile economic stabilisation could be at risk if the authorities fail to contain the new virus currently sweeping across Asia, economists have warned.

UBS Group, Nomura Holdings and Barclays Bank reached back to the 2003 Sars outbreak for guidance on potential impact.

UBS noted that "history does not repeat itself, but it rhymes", while Nomura said that based on the outbreak 17 years ago, it expects "increased downward pressure on China's growth, particularly in the services sector". Barclays expects the "economic impact from the virus is likely to be transitory, with the effects felt more in transportation and retail sales."

The authorities are acting aggressively as the number of cases nearly doubled to 291 over the weekend and stretched to five additional countries, including the first diagnosis in the United States. The resident of Snohomish, Washington, had recently travelled to Wuhan, the epicenter of the outbreak, though he said he hadn't spent any time at the live-animal market where the virus is believed to have originated and didn't have contact with anyone who was sick.

While the virus' arrival in the US highlights the dangers of it spreading and impacting economies around the world, even if it's contained to China, there would still be a hit to global growth. That's because China's weight has more than doubled since the 2003 Sars epidemic. It is estimated to account for about one-fifth of the world economy this year, compared with 8.7 per cent at the time of Sars, International Monetary Fund data show.

UBS economists Wang Tao and Ning Zhang noted the ongoing peak travel season around the Chinese New Year "is a tremendous challenge, which could complicate the disease diffusion".

"If the pneumonia couldn't be contained in the short term, we expect China's retail sales, tourism, hotel & catering, travel activities likely to be hit, especially in Q1 and early Q2," UBS said. "Our forecast of sequential growth rebound in Q1 and Q2 2020 would face some downside risk. The government would likely strengthen its policy easing to offset the shock from the pneumonia, especially for those directly affected sectors."

Barclays economists including Chang Jian also see prospects for targeted credit and fiscal support if the spread intensifies.

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