While January activity surveys showed encouraging signs of stabilisation or even recovery in Asia, the appearance of COVID-191 in Wuhan (Hubei province in China) will delay the recovery of the manufacturing industry.
To estimate the effects of this epidemic on the world economy, some use the 2002-03 SARS epidemic as a benchmark. However, this episode is not very comparable. Firstly, the recent measures taken by the Chinese authorities are unprecedented -- cities placed in quarantine, closure of production sites, etc. Secondly, China is in a very different situation from that of the early 2000s. The debt burden of its non-financial corporates has since risen sharply (graph 1), while its growth has weakened. By contrast, in 2002, newly admitted to the WTO, its exports were much more dynamic. Finally, China occupies a special place in the globalised economy: a veritable workshop of the world, its weight in world GDP has more than doubled to represent almost a fifth today (graph 2).
The extent of the shock to its economy, as for the rest of the world, will depend on how quickly activity in China can be returned to normal. Our rough calculation suggests that a shock to Chinese production lasting 20 working days would result in a loss of one percentage point of growth over the year: China's projected growth would be closer to 5% than 6% in 2020 (graph 3). However, the shock would be concentrated in the first quarter and a significant catch-up effect would occur in the second quarter. The economic consequences of a longer-lasting paralysis would be more worrying for China, of course, but also for the rest of the world. Chinese tourism today represents about 0.3% of world GDP (and much more for some countries, particularly in Asia). More importantly, over the last decade, the weight in GDP of imports of intermediate goods from China has doubled in most countries. If the recovery of activity in China is slow, the disruption of supply chains could become more severe.
Chart 1: China's non-financial sector debt (as percent of GDP)
Sources : Refinitiv Datastream, Candriam
Chart 2: China's share of world GDP
Sources : Refinitiv Datastream, Candriam
Chart 3: China's growth rate projections for 2020 (%, based on number of days of underproduction)
Source : Candriam
1 COVID-19 is defined as "globl disease strain of 2019", and is the official name given by the WHO.