The pressure on the virus outbreak in China has already weakened the economy

By Gabriel D. Crossley

BEIJING, January 27 (Reuters). An outbreak of the coronavirus in China, which killed 81 people and spread to many countries, is expected to damage the economy, an engine of global growth, although analysts say it is too early to do so Quantify overall impact on businesses and consumers.

There is consensus that short-term economic performance will be affected if the Chinese authorities step up preventive measures, impose travel restrictions and extend New Year holidays to limit the spread of the virus.

Millions of people who normally travel during this time have canceled their plans, and the government has ordered air and rail passengers to be granted full refunds

Shanghai announced on Monday that companies will not be able to resume business before February 9, and that stores in Suzhou, east China’s manufacturing center, must remain closed at least until February 8.

The government has extended the weeklong New Year holidays by three days until February 2nd at the national level.

Wuhan, a city of 11 million people and the epicenter of the virus outbreak in central China, is already in a virtual lockdown state, and severe movement restrictions apply in several other Chinese cities.

Many analysts are turning to Serious Acute Respiratory Syndrome (SARS), a coronavirus that originated in China and killed nearly 800 people worldwide in 2002 and 2003 to better understand its likely longer-term effects.

“The economy recovered quickly after SARS disappeared,” Macquarie Capital’s Larry Hu said in a message to customers. Transport, restaurants, and retail sales were affected, but Hu said broadly that SARS was “just a slip that didn’t change the big trend.”

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This time, however, analysts could argue that China’s increased reliance on consumption as a driver for the world’s second largest economy compared to the early 2000s could undermine growth.

“In China, consumption contributed about 3.5 percentage points to real GDP growth of 6.1% in 2019. The calculation showed that if spending on such services declined by 10%, overall GDP growth would decrease by around 1 , 2% would decrease points, “said S&P Global Ratings analysts in a note.

The early dates make reading sober.

The usual rush to travel, tourism and entertainment for the New Year is already subsiding. Overall, the number of passengers on the first day of the lunar new year fell by almost 29% compared to the previous year, an official from the Ministry of Transport said.

With many cinemas closed, Chinese cinemas earned 1.81 million yuan ($ 262,166.86) in movie tickets on the first day of the lunar new year, a more than 99% decrease from a year earlier, according to Chinese box office company Maoyan ,

Remarkably, outside conditions were favorable in the 2002-03 period, while the outbreak of the coronavirus “exacerbated the existing growth disorders,” Nomura analysts said in a note. China’s GDP growth fell to almost 30-year lows in 2019, under pressure from weak domestic demand and trade breaks with the United States.

GLOBAL IMPACT

China continues to contribute more to global economic growth today than it did 17 years ago, which means the virus will have a major impact on the domestic world.

Global stocks fell to their lowest level in two weeks on Monday due to virus problems, and demand for safe assets such as the Japanese yen and treasury bills increased.

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Regions that rely on tourism, especially Chinese tourists, such as Hong Kong, Thailand, Vietnam, Singapore and the Philippines, appear to be the most affected by the virus, Louis Kuijs, Asia Economics Director at Oxford Economics, said in an email Reuters.

The virus has already spread to more than 10 countries, including the United States, France, Australia and Singapore, although all 81 deaths have occurred in China so far.

Singapore, the Southeast Asian financial and tourism center, warned on Monday of an economic blow to the outbreak.

“We expect this to impact our economic, business and consumer confidence this year, especially as the situation will continue for some time,” said Singapore’s Commerce Minister Chan Chun Sing on Monday.

($ 1 = 6,9040 Chinese renminbi) (reporting by Gabriel Crossley editing by Shri Navaratnam)

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