The coronavirus will have a significant downward impact on growth in China, due to two specific reasons.
Firstly, it occurred during the New Year period, which is traditionally a time of high consumption of goods and services (transport and hospitality). Secondly, it resulted in drastic factory closures in regions representing nearly 95% of the GDP, which will heavily weigh on the industrial activity of the first quarter.
The cost on Chinese growth will depend on the duration of the epidemic. However, it is projected to be reduced to around 5.0% despite the support measures. In both scenarios, the forecast for Chinese growth will fall well below 6% this year.
In 2003, the SARS epidemic affected the Chinese economy, Hong Kong, and Southeast Asian countries such as Singapore, Thailand, and Vietnam. However, the impact on the global economy was very minimal (a growth cost of less than 0.1%) due to China’s relatively low economic weight at the time.
Today, China accounts for nearly 20% of the world’s GDP compared to 8% in 2003, so the Chinese slowdown will affect partner countries through international trade: first in Asia; and in developed countries, cyclical indicators should at least pause in their improvement, or even consolidate in the most fragile ones (Germany, Italy).
Regarding the ECB, it will have to significantly lower its growth forecasts, which were already too optimistic for 2020 and 2021 even before the coronavirus, which will be accompanied by a 10 basis point cut in the deposit rate.
