SYDNEY/BEIJING/LONDON – The global cost of the coronavirus could be three or four times that of the 2003 SARS outbreak, which sapped the world’s economy by $40 billion, according to the economist who calculated the SARS figure.
The sheer growth in the Chinese economy over the last 17 years means the global health emergency triggered by the coronavirus outbreak has far greater potential to gouge global growth, according to Warwick McKibbin, professor of economics at the Australian National University in Canberra.
“It’s just a mathematical thing,” McKibbin said in a phone interview. “Most of the GDP loss that we saw in the SARS model — and in reality — was China slowing down. And so, with China much bigger, you’d expect the billions would be much bigger.”
While difficult to pinpoint a precise cost as the crisis is still unfolding, the impact will be experienced mostly through changes in “human psychology,” he said. “Panic is what seems to be the biggest drain on the economy, rather than deaths.”
Markets have been whipsawed by panic, Paris-based Amundi Asset Management said in a note on Wednesday. Chief Investment Officer Pascal Blanque and his deputy Vincent Mortier said the novel coronavirus had provided the trigger for a pause in a stock market rally that began in October.
McKibbin’s forecasts are in line with those of other analysts.
Nomura International Ltd. expects the blow to China’s growth could exceed that seen during the SARS outbreak. Real GDP growth in the first quarter could “materially drop” from the 6 percent pace in the fourth quarter, and maybe by even more than the deceleration of 2 percentage points in 2003’s second quarter, Nomura economists led by Lu Ting wrote in a report to clients.
The first official indicator of the Chinese economy in 2020 signaled factories were flatlining even before the country shut down for the Lunar New Year holiday period and the coronavirus outbreak worsened.
The manufacturing purchasing managers’ index dropped to 50 in January, according to data released by the National Bureau of Statistics on Friday, matching the median estimate of economists. The nonmanufacturing gauge was 54.1, compared with 53.5 in December.
Due to the holiday, the surveys were conducted earlier in January than normal, before the extent of the disease outbreak and the disruption to the economy were evident.
China’s economy was already slowing amid weak domestic demand, a crackdown on debt and the trade war with the U.S. The outbreak of the novel coronavirus is now hammering growth as businesses shut for at least another week and people across major cities avoid going out for fear of getting sick.
“We expect a big plunge of both manufacturing and service PMIs in February and March,” said Lu Ting, chief China economist at Nomura Holdings Inc. in Hong Kong. “The virus outbreak may further weaken domestic demand and thus render the upcoming policy easing less effective.”
The worsening health crisis has seen numerous economists revise down their forecasts for growth. Many expect the government and central bank will step in to cushion the blow.
The impact of the new coronavirus “has not been fully reflected in January PMI, and its influence on the economy shouldn’t be underestimated,” Zhang Liqun, an analyst at China Logistics Information Center compiling the data with the NBS, wrote in a statement. “Efforts are needed to stabilize growth.”
GDP growth will slow to 4 percent year-on-year in the first quarter from a previously forecast 5.6 percent, according to Andrew Tilton, chief economist for Asia Pacific at Goldman Sachs in Hong Kong. Even with the assumption of a relatively quick rebound in the second and third quarters, that would lower full-year 2020 growth to 5.5 percent, he said.
“A more prolonged outbreak could lower full-year growth to 5 percent or even below,” Tilton wrote in a note to clients dated Jan. 31.
The U.S. State Department has warned Americans not to travel to China, and airlines around the world are paring services to contain the outbreak.
European carriers led by British Airways have said they were quitting China as the coronavirus spreads. Japan-based carrier ANA said Friday it may need to considering canceling China flights. U.S. carriers are taking a more conservative approach, with the three top operators paring timetables without exiting China completely.
Moves to abandon routes to Beijing and Shanghai indicate escalating levels of concern, with both cities hundreds of kilometers from the focus of the outbreak.
More contagious than SARS but less deadly, the insidious nature of the coronavirus, dubbed 2019-nCoV, is such that it often presents as mild cold-like symptoms and can go undetected, which could potentially protract out the crisis for longer than the 2003 epidemic.
The new virus, which emerged in central China in late 2019, is reported to have infected almost 10,000 people in two months, eclipsing the 8,096 SARS cases reported from November 2002 through 2003, when the contagion spread from China across Southeast Asia and to North America and Europe.
“If a country had a bad epidemiological outcome, then their shocks were likely be a lot bigger than countries that were able to control it well,” McKibbin said, referring to his findings from examining the impact of SARS.