Coronavirus ‘unlikely to cause lasting damage to global economy’
Bank of Singapore forecasts impact to China’s annual GDP growth to be up to 0.5% — half the 1% hit it took from SARS in 2003
The coronavirus outbreak that has infected more than 1,300 people, mainly in China, is “unlikely to cause lasting damage” to the global economy, the Bank of Singapore said in a research report.
The virus outbreak, which originated in Wuhan, China, is expected to last two to four months and the impact to China’s annual gross domestic product growth will be around 0.5 per cent or less, the bank said on Friday. It will have a smaller impact than the SARS (Severe Acute Respiratory Syndrome) outbreak in 2002-2003, which caused a 1 per cent hit to China’s GDP growth.
“We believe that the Wuhan virus outbreak alone is unlikely to derail an anticipated global recovery this year, given low interest rates, relief from a US-China trade truce and the likelihood of more stimulus from China to counteract the outbreak’s economic hit,” the bank said.
However, as the outbreak escalates, there will be “more pain before relief for markets” and rising concerns have “stalled the risk-on market rally which began in October last year”, the bank said.
Crude posted the worst weekly decline in more than a year on concern the spread of the virus will cripple fuel demand. Brent futures sank 2.2 per cent in London on Friday.
The virus is now in four continents, as of Saturday, with new cases reported in the US, Europe, Australia and Malaysia. In China, there are 1,287 confirmed cases, including 444 new patients, according to the National Health Commission, which said 41 people have died.
The SARS outbreak infected more than 8,000 people worldwide with 774 deaths. A research paper from economists Jong-Wha Lee and Warwick McKibbin, titled Learning from SARS: Preparing for the Next Disease Outbreak, estimated the global economic loss in 2003 due to SARS at $40 billion (Dh147bn).
Still, even SARS and other previous epidemics, including Swine Flu, MERS (Middle East Respiratory Syndrome) and the Avian Flu, have had a limited impact on the global economy, the Bank of Singapore report said.
“During the SARS episode, the markets corrected as the outbreak escalated and only hit the bottom when the rate of infection peaked before staging a sharp recovery as the number of new cases began to stabilise,” it added.
There are indications that the Wuhan coronavirus will have even less of an impact for various reasons, the bank said. While the outbreak is still at an early stage, as the first case was identified on December 8, so far the coronavirus has shown a lower mortality rate of around 3 per cent versus SARS at approximately 10 per cent and MERS at more than 30 per cent.
Chinese authorities have also been acting much faster; it took China almost three months to inform the World Health Organisation after the first SARS case was confirmed, while this time it took less than a month. China has taken more decisive measures this time, imposing travel restrictions in Wuhan and at least four more cities.
While the SARS outbreak affected consumer spending, there is likely to be less of a toll due to far more developed e-commerce.
Global equities have corrected 0.6 per cent between January 17 and January 24, with most of the impact in Asia, said the Bank of Singapore.
It added that it is too early to buy broadly on dips. Currency strategist Sim Moh Siong said the medium-term outlook for the Chinese renminbi is relatively stable with a 12-month target of 6.90 against the US dollar.