The outbreak of coronavirus will have a larger negative effect on the global economy than the SARS (Severe Acute Respiratory Syndrome) outbreak in 2003, as any slowdown in Chinese economy would send not ripples but waves across the globe, IHS Markit said on Friday.
The virus has brought large parts of the world’s second largest economy to a standstill and its impact was felt across industries.
“Coronavirus will have a larger negative effect on the global economy than the SARS outbreak in 2003. At the time of SARS, China was the sixth largest economy, accounting for only 4.2% of world GDP,” IHS said in a commentary on coronavirus outbreak.
“China is now the world’s second largest economy, accounting for 16.3% of world GDP. Therefore, any slowdown in the Chinese economy sends not ripples but waves across the globe.”
If the current and unprecedented confinement measures in China stay in place until the end of February, and are lifted progressively beginning in March, the resulting economic impact will be concentrated in the first half of 2020, with a reduction of global real GDP of 0.8% in Q1 and 0.5% in Q2, it said.
In this scenario, the coronavirus and resulting measures will reduce global real GDP by 0.4 per cent in 2020.
On the other hand, if confinement measures begin to lift on February 10, the impact on global GDP will be more limited, resulting in a 0.1% reduction in global GDP growth in 2020 and 0.4% reduction in China’s annual growth.
“The effects of coronavirus are most pronounced in household consumption and somewhat mitigated in the industrial sector because factories are seasonally idle during this period. Nevertheless, in many ways China’s economy is more vulnerable today than it was in 2003, with productivity and overall economic growth already slowing and the effects of the US-China trade conflict,” it said.
In 2002, China contributed 23% of world GDP growth, in 2019 China contributed an estimated 38% of world growth, IHS said.
If the situation lingers into mid-March, and plants in adjacent provinces are also idled, the China-wide supply chain disruption caused by parts shortages from Hubei, a major component hub, could have a wide-reaching impact.
In this scenario IHS Markit predicted potential lost production of more than 1.7 million units for the first quarter, or about 32.3 per cent decline from its pre-crisis expectations.
In 2019, China’s oil demand was 13.9 million barrels per day or 14 per cent of world market as compared to 5.6 million bpd in 2003 which equated to 7 per cent of world demand.
“China accounted for half of world oil demand growth in 2019. In 2003 China accounted for one third of world oil demand growth,” IHS said.
Mainland China is now the second-largest importer in the world, accounting for 10.4% of the world’s goods imports, compared with 4% of the world’s imports in 2002.