Tuesday 4 February 2020 4:57 am

DEBATE: Will the coronavirus outbreak have a long-term impact on the Chinese economy?

Emma Wall is head of investment analysis at Hargreaves Lansdown.
Jumana Saleheen
Jumana Saleheen is chief economist at commodities consultant CRU Group.

Will the coronavirus outbreak have a long-term impact on the Chinese economy?

Emma Wall, head of investment analysis at Hargreaves Lansdown, says YES.

Gross domestic product is split into three sectors which drive growth: agricultural, industrial, and services.

Agriculture, which makes up seven per cent of China’s GDP, has already taken a significant hit in the last year thanks to African swine flu, leading to a cull of more than 100m pigs.

Industry, the production of goods for sale or export, makes up 41 per cent of Chinese GDP. If the factory workers required to convert raw materials are unable to travel thanks to coronavirus restrictions, this will inevitably slow.

Services, at 52 per cent of GDP, covers entertainment, retail and tourism. Global corporations are banning staff from visiting China for the foreseeable future, and many major airlines have cancelled all flights. Tourism alone accounts for 10 per cent of economic growth — around 140m trips are made by foreigners, and 134m trips by Chinese tourists every year. We can assume most of this will be wiped off GDP for 2020.

The question is not will coronavirus impact Chinese growth, but how long the impact lasts.

Jumana Saleheen, chief economist at commodities consultant CRU Group, says NO.

The coronavirus epidemic will undoubtedly be negative for China’s economy in the next 12 months, but the long-term impact — five to 10 years out — is likely to be negligible.

Predicting the economic outcomes of rare events is an uncertain business, but businesses seek an answer by learning lessons from history. A similar virus outbreak in China in November 2002, the Severe Acute Respiratory Syndrome (SARS), led to a sharp drop in tourism, retail sales, and GDP growth. But as the virus was brought under control, and aided by government stimulus, the economy recovered, making up for lost ground by early 2004. It left no discernible long-term scar.

This time is different — in a positive way. The World Health Organisation has praised China for its prompt response to contain the virus through its “lockdown” of affected cities. The virus is less deadly. And China’s central bank has been active in easing the repercussions in financial markets, with further stimulus expected.

While short-term pain is inevitable, long-term impact is not.

Main image credit: Getty

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