Coronavirus has infected the economy: Analysts downgrade China’s growth forecast

UNITED STATES (OBSERVATORY NEWS) — Coronavirus COVID-19 can worsen the dynamics of the Chinese economy by 0.5-1.5 percentage points and slow down the growth of developed and emerging markets, according to EIU analysts. Beijing will need as much money to keep the economy afloat as it did in the 2008 crisis.

The Chinese economy against the backdrop of the coronavirus epidemic may slow down in the first quarter of 2020 to 4% year on year, and by the end of the year, its pace will drop to 5.4% compared to the previously expected 5.9%, analysts at the Economist Intelligence Unit predict. In 2019, China’s GDP growth rate was 6.1% compared to 6.6% in 2018.

If the Chinese authorities fail to control the spread of infection by early March, the growth rate of the PRC will fall even more – by 1.5 percentage points in 2020, pessimistic at the EIU. According to WHO, in China , 1,115 people have already died from coronavirus, more than 43,000 people have been infected.

In the coming months, the Chinese economy will face serious challenges. Authorities will have to resort to fiscal stimulus comparable to the 2008 crisis, when about 4 trillion yuan was spent on these goals, EIU analysts warn. However, it is not clear whether government support measures will mitigate the negative impact of coronavirus on the industry and services sector, experts are pessimistic.

The crisis will affect not only China, but also other emerging markets, but it’s too early to talk about the scale of the blow – much will depend on how the situation develops in the coming month, EIU analysts said at a conference call . Slowing the Chinese economy will reduce appetite for Russian energy, which at the end of 2019 amounted to 8.7% of Russian exports, according to the EIU.

Brent oil prices have fallen by about $ 10 per barrel since mid-January amid investor concerns about the coronavirus. The forecast for the average price in 2020, the EIU has already lowered – from $ 65 to $ 63 per barrel. If the epidemic expands, the average price of a barrel of Brent could drop another $ 3-5, the EIU predicts. The crisis in China will primarily hit countries-producers of raw materials, Moody’s analysts agree.

Footrest for global growth

Even before the detection of coronavirus, in the fourth quarter of 2019, economic performance was weak in all G7 and BRICS countries (Brazil, Russia, India, China and South Africa) due to tensions in world trade, rising volatility in emerging markets and political uncertainty in the EU . The epidemic will further slow down economic growth in these countries, EIU analysts warn.

Thus, the growth of real GDP in the eurozone slowed down to 0.1% in the IV quarter compared with 0.3% in the III quarter, and by the end of 2020 it will not exceed 1.2% last year. The closure of production in China will have the greatest impact on the German economy, which exports about 7% of its products to the Chinese market, according to EIU. According to EIU estimates, real US GDP growth will slow to 1.7% in 2020 from 2.3% in 2019. Significant damage from the Chinese coronavirus will be recorded by those markets that depend on Chinese supplies primarily in electronics, pharmaceuticals and biotechnology, as well as countries that receive significant income from Chinese tourists, EIU analysts say.

Russia is among the vulnerable economies because it is heavily dependent on global supply chains, according to the EIU. The share of China in the foreign trade turnover of Russia is about 16%.

Even if the spread of the virus can be stopped and the prohibitions are lifted, the recovery of economies from coronavirus will not be as fast as during the last SARS epidemic in 2002-2003, Moody’s analysts are pessimistic. The situation is unprecedented, an example of the SARS SARS epidemic in 2003 is becoming less and less relevant, the chief economist of Alfa Bank Natalia Orlova said in the report . In 2003, the Chinese economy lost about 1 pp of growth, for the trajectory of the world economy, this slowdown was not so painful, since economic activity in those years was booming, now the prospects for global growth remain at risk, she noted.


This article is written and prepared by our foreign editors writing for OBSERVATORY NEWS from different countries around the world – material edited and published by OBSERVATORY staff in our newsroom.

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