China GDP growth could decline by 1% amid coronavirus spread, says government researcher

The coronavirus outbreak in China could cut the country’s economic growth by 1% in 2020, said Zeng Gang, a Chinese government think tank senior member.

The vice chair of the National Institute for Finance and Development cited the 2003 SARS epidemic where China’s growth dropped by 2%, in comparison to the Wuhan virus.

“At present, according to different scenario assumptions, researchers expect the negative impact of the epidemic on full-year GDP growth to be in the range of 0.2% to 1%.”

If the government’s response to the epidemic is efficient, it would not lead to a bigger impact on long-term growth, said Zeng. However, it’s impact on short-term economic activity is already apparent.

Zeng added that small companies could be heavily affected and trigger a series of bankruptcies. It could also raise unemployment rate in the first quarter.

President Xi Jinping said that the government will prevent large-scale layoffs.

China’s central bank cut interest rates and generated the market with liquidity to underpin the economy and prevent a bigger decline. The Central Bank will also render special funds for banks so businesses can borrow.

Analysts at Citi estimate a significant decline in growth despite the more proactive fiscal and monetary policies.

“Assuming the virus is contained by the end of March, we revise down our 20Q1 GDP growth forecast considerably to 3.6% and the annual growth modestly to 5.3%”, Citi analysts said.