As authorities in China race to contain the spread of a new coronavirus that has killed hundreds, investors are bracing for global economic fallout that some analysts said could be more severe than the SARS outbreak in 2003.
SARS, which stands for severe acute respiratory syndrome, first emerged in China’s Guangdong province before spreading to other countries. The virus claimed around 800 lives worldwide and shaved 0.5 to 1 percentage points off China’s growth in 2003, according to various estimates.
But the new coronavirus — believed to have originated in Wuhan city — has struck China at a time when its economy has grown larger and established greater connections with the world. That means any pressure on China’s growth now would hit the global economy harder than before.
Here are five charts that show how China’s economy has changed since the SARS epidemic.
World’s second-largest economy
Since 2003, China has grown from the world’s sixth-largest economy to the second biggest today behind the U.S. The country has been a main growth driver worldwide, with the International Monetary Fund estimating that China alone accounted for 39% of global economic expansion in 2019.
Taimur Baig, chief economist and managing director for group research at Singaporean bank DBS, said “the whole world didn’t even notice” when China’s growth slowed by around 1 percentage point following SARS.
“It was just business as usual,” he told CNBC’s “Capital Connection” last week. “Now, China accounts for nearly a-fifth of global growth. China slowing by half a percent would be seismic.”
Services play a bigger role
As with the SARS outbreak 17 years ago, the spread of the new coronavirus is likely to first hit consumer spending. But the decline in consumption this time could be more severe than 2003, some analysts said, especially after authorities shut down much of China in a bid to contain the virus.
Lower consumer spending will pressure China’s services industry, which today account for a larger share of the country’s gross domestic product compared to 2003. That also means any drag from services will weigh more on the Chinese and global economies today.
Tourism spending overseas
Chinese consumers have also been spending big overseas. Since 2014, China has been the largest source country of international tourism expenditure, climbing from seventh place in 2003, according to the World Tourism Organization.
Travel bans and flight cancellations put in place since the emergence of the new coronavirus could curtail Chinese tourism spending overseas. That’s a threat to many economies, especially those in Asia, said Kelvin Tay, regional chief investment officer at UBS Global Wealth Management.
“If you look at Asia itself, Chinese tourism is now a bigger part of the economy for almost all countries,” he told CNBC’s “Street Signs Asia” on Monday.
Major global importer
On the trade front, rising demand within China has made the country the world’s second-largest importer since 2009, data by the World Trade Organization showed.
China is the largest importer of commodities such as oil, iron ore and soybeans, as well as electronic parts such as integrated circuits.
Demand for those goods could slump alongside a slowdown in the Chinese economy. As it is, the Organization of the Petroleum Exporting Countries and its allies including Russia are considering cutting oil production due to the coronavirus impact on demand, Reuters reported.
World’s largest exporter
The virus outbreak could also affect the global economy through China’s exports channel.
China has been the world’s top exporter since 2009, climbing from fourth place in 2003, according to data by the WTO. Countries such as Japan and Vietnam have “a huge amount of reliance on the Chinese supply chain,” said DBS’ Baig, explaining that those economies import materials and parts from China to make their own products to export.
“Not only will China slow and have impact on the global demand, these countries which rely on China for intermediate inputs will also be affected,” he said.
Reference: CNBC
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