With deaths now exceeding 500 and a large-scale quarantine still in place, the Chinese economy seems set to take a hit to its GDP growth. But while a short-term rebound is unlikely, the long-term prognosis is largely positive.
“If the pattern of the SARS impacts [is] a guide, there is the potential for the Chinese economy to rebound with an above‑potential growth rate once the outbreak subsides,” Chris Kushlis, fixed income sovereign analyst for Asian markets, said in a note.
“In 2003, China’s growth rate climbed to 15.5 per cent in the third quarter. A similar rebound following the coronavirus could help keep the longer term track of the Chinese economy on a relatively even keel. Likewise, equity and credit markets could recover as sectors hardest hit from the outbreak benefit from pent‑up demand.”
China has already responded with a wide-ranging set of short-term stimulus measures, including a short-term RMB300 billion lending program to Wuhan, the city at the epicentre of the outbreak.
“Looking longer term, we expect Chinese authorities to take a restrained approach to any sustained stimulus,” Mr Kushlis said.
“In recent years, China has focused on deleveraging and will not be overly aggressive in deviating from this path. The PBOC will likely remain reactive to weakness in growth data. Fiscal stimulus rather than monetary measures could be the primary tool to support growth.
“Overall, we think the aim will be keeping the full‑year growth rate broadly in line with targets while tolerating a degree of temporary weakness in the near term.”
However, the outbreak remains unpredictable and new cases of the virus have not yet plateaued. The key economic battlegrounds will be Macau’s gaming industry – which has been largely non-existent since the casino shutdown – and the Chinese real estate market, which has come under pressure due to a pause in house sales in order to reduce public gatherings.
