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S&P warns virus threatens to dent China’s new growth driver

‘Industries exposed to China’s household spending will likely feel the biggest economic impact of the outbreak’ – economist.

Chinese consumption, a key growth driver in an economy transitioning from investment, is set to take a blow from the coronavirus outbreak that hit just as millions of people set out on vacation, S&P Global Ratings said.

If spending on things including discretionary transport and entertainment dropped by 10%, overall GDP growth would fall by about 1.2 percentage points, according to “back of the envelope” estimates from Shaun Roache, Asia-Pacific chief economist.

“Industries exposed to China’s household spending, especially activities that take place outside the home, will likely feel the biggest economic impact of the outbreak,” Roache said. “Risk aversion and tighter financial conditions could amplify the impact, including on investment.”

Restrictions on travel and public gatherings have been implemented in Wuhan, the central province in China where the virus was first detected, as well as in several nearby municipalities. Hong Kong and Beijing are canceling planned holiday activities, according to local officials and state media.

While the outbreak is centred in Wuhan, other large population centres including the major “tier-1 cities” have begun reporting cases, S&P noted. Given the typical lag between contracting the virus and showing symptoms, consumers are likely to avoid public spaces to lower the probability of infection, it said.

Mounting fears about the outbreak have roiled financial markets, and the Shanghai Composite Index had the worst end to a Lunar Year in its three-decade history.

 

© 2020 Bloomberg L.P.
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