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Coronavirus impacts still unknown

Lachlan Maddock
— 1 minute read

The economic impacts of the coronavirus are still up in the air as the scale of the outbreak begins to exceed that of SARS.

The Shanghai Composite Index was down 8 per cent on Monday as Chinese markets reopened after a week’s suspension, despite the efforts of authorities to stabilise markets by announcing a range of policy initiatives over the weekend. Lab-confirmed cases of coronavirus in Wuhan have risen from 50 to over 17,000 over the last two weeks, and while the death rate is believed to only be 2 per cent, that could well equate to a much higher toll than SARS. 

“Given the breadth of the potential biological and economic outcomes of the Wuhan novel coronavirus, financial markets are likely to remain highly sensitive to the daily reports of the number of confirmed cases and deaths,” asset manager Janus Henderson wrote in a note. 

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“Expectations could quickly shift towards benign scenarios, involving infection rates peaking and economic sentiment rebounding or to catastrophic ones involving viral mutations and a fast-spreading global pandemic.” 

Compounding the matter is the possibility that the virus can be transmitted asymptomatically, meaning that a single infected person could infect many others before the vector becomes apparent. 

“While the World Health Organisation reports that this sort of transmission type ‘may be rare’, any evidence that it is more prevalent would be ominous in terms of the potential contagion dynamics,” Janus Henderson wrote.

“The uncertainty surrounding the incubation period, which is estimated to be between two to 14 days, is also another complicating factor here.”

Many forecasters predict that China’s Q1 GDP growth could dip by 1 to 2 per cent from its 6 per cent annual growth rate, but Janus Henderson believes there are still a wide range of plausible economic scenarios for China. 

“If the infection rate slows in the next few weeks and quarantine measures can be lifted, Chinese growth could quickly rebound, reinforced by a widely expected range of policy stimulus measures,” Janus Henderson wrote. 

“If infection rates continue to rise, then quarantine measures will almost certainly be extended, with more limitations being imposed on travel, a prolonged period of industrial closures in China and more significant economic spillovers to the rest of the world.”

 

Coronavirus impacts still unknown
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