Comparison with the SARS epidemic
There are more downside risks to contend with today than was the case in 2003 when the SARS epidemic broke out:
- In 2003, the Chinese economy was growing at around 15%, in the fourth quarter of 2019 Chinese real GDP growth was 6% year-over-year. A one-quarter SARs-like shortfall could push Chinese real GDP growth down into the 4% range during the first quarter of 2020;
- With China accounting now for about 20% of global GDP, a two-percentage-point shortfall in annualized Chinese GDP growth could knock approximately 0.4 percentage points off annualized world GDP growth during the first and second quarters of 2020. For a global economy that has already slowed into the danger zone such decrease could heighten fears of a global recession.
Coronavirus Could Hobble Chinese Economy at a Precarious Moment
By: Stephen Roach – Yale University
But this time is really different
According to Shang-Jin Wei, there are three reasons why the coronavirus will not have a strong negative impact on Chinese growth:
- Chinese consumers are increasingly doing their shopping online. Much of the reduction in offline sales owing to the virus will likely be offset by an increase in online purchases;
- The Chinese authorities have been much swifter than they were during the SARS episode in controlling the spread of the virus;
- By greatly increasing its imports of facemasks and medical supplies from the U.S., China can simultaneously tackle the health crisis and fulfill its promise under the “phase one” deal to import more goods!
Will the Coronavirus Cause a Major Growth Slowdown in China?
By: Shang-Jin Wei – Columbia University
No recession, more stimulus and, more debt
The People’s Bank of China immediate and bold reaction to calm markets with the equivalent of USD 170 billion in liquidity injection says it all about the pressure for Chinese policymakers to mitigate the impact of the coronavirus outbreak on financial markets, on sentiment and on the Chinese economy, more generally.
China’s Coronavirus will not lead to recession but to stimulus and even more debt
By: Alicia García-Herrero – Bruegel
The wild card: How will the U.S. react to the appreciating dollar?
Desmond Lachman argues that there are two reasons why the U.S. dollar is appreciating and will continue to do so:
- Investors are becoming uncertain about the global economic outlook and are seeking the safe haven of U.S. treasuries, reversing capital flows that were directed to emerging economies in the past years;
- Any slowing of the Chinese economy will affect more the Asian economies and Germany than the U.S. If Asia and Europe further ease monetary policy and the U.S. doesn’t, that should further boost the dollar.
An appreciating dollar will deteriorate the U.S. trade deficit which the Trump administration might decide to counter with another round of import tariff increases.
The coronavirus’s dollar boost
By: Desmond Lachman – American Enterprise Institute
