Danske Bank A/S S.A. Oddział w Polsce: Research China: Uncertainty on the rise on the backof coronavirus

27-01-2020
  • With  the  spread  of  the  coronavirus,uncertainty isincreasingfor  the  Chinese economy  and  thus  the  global  economyand  financial  markets. The  brewing Chinese recoveryislikely to take a hit in the short termand GDP could be reduced by up to one percentage point in H1.

  • The virus is at an early stage and it is difficultto judgehow much it canspreadbefore  it  gets  under  control.On  the  positive  side,the government response  has been  faster  and more  drastic measures have  beentaken  to  contain  the  virus compared to the SARS epidemic in 2002-03.

  • On  the  other  hand, the  virus  seems  more  contagious  than  SARS  and China’s transport system is significantly wider today. The Chinese New Year holiday that started  last  week poses  a  heightened  risk  of  contagion.  The  economic  impact is likely to be bigger this time as the service economy is a much higher share (54%) of the economy today compared with the 2002-03SARS outbreak(42%).

  • The Chinese economy is also a much bigger driver of global growth. A mitigating factor is that mainly the service sector should be hit, where the import content is small. However,  retail  sales  could  also  suffer, which  could  hurt  importsand inflation could see another push higher from reduced production in Hubel.

  • The  SARS  epidemic  lasted  3-4  months  but  it  is  hard  to  say  if  this  is  any  guide. While  the  government  response  is  faster,  the  new  virus  seems  to  be  spreading faster. It is too early to judge when it will get under control.

More: https://research.danskebank.com


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